Medical debt can be crippling. Even the most financially responsible people can suddenly receive a four- or five-figure bill from the hospital that exceeds their emergency budget.
All this unpaid debt keeps the collection agencies in the United States going. The Consumer Financial Protection Bureau estimates that in the second quarter of 2021, more than half of all collections bills — about 58% — were medical bills.
But how long does medical debt stay on your credit report after it hits the credit bureau?
You may have heard that medical debt disappears from credit reports after seven years and is never seen again.
But is this rumor good enough to be true? Is Medical Debt Really Going Away?
Well yes and no. While medical debt doesn’t magically erase after seven years, it does have less of an impact on your overall financial health.
How does medical debt affect your credit report?
Here is the flow of a typical medical bill:
Step 1: The healthcare provider requests payment
If you’re having trouble paying your medical expenses in full right away, most providers will let you set up a payment plan.
Be sure to check the line items on your bill to make sure you haven’t been charged for any services you didn’t receive and that your insurance (if you have coverage) was billed correctly.
When you pay an invoice at this stage, even if you only made a partial payment, it will not proceed to step 2.
Read more: Why is double billing by doctors so common?
Step 2: The health care provider sells your debt to a collection agency.
Hospitals and other health care providers typically wait 60 to 120 days before they turn over unpaid medical bills to collectors. If you don’t take action on your account within two to four months, debt collectors will start calling you.
At step 2, you can still develop a payment plan. Debt collectors in the US must give you a grace period of 180 days (about six months) to pay off your medical debt. From July 2022, this grace period has been extended to a full year.
Step 3: The collection agency reports the debt to the three major credit bureaus and it ends up on your credit report.
The grace period is designed to give you time to negotiate your debt with your insurance company, collection agency, or the hospital itself.
Step 3 is triggered if your invoice is still overdue – meaning you haven’t taken any action to pay it – after the grace period. At this point, the score is on your credit report and could hurt your credit score.
Step 4: The debt remains on your credit report for seven years.
How long does medical debt stay in your account? Unpaid bills, even those with a small balance, remain on the credit report for seven years or until they are paid.
Read more: 5 ways to deal with an unexpected medical bill
Do you have to pay off medical debt after it has been reported to your credit?
You might think the damage is done after step 3, but it’s still worth making the payment if you can, for several reasons:
- After July 2022, medical bills sent to collectors will be removed from your credit report when they are paid in full.
- Some of the new credit scoring models, including the unique FICO® scoring model, ignore fee-based CIT accounts, so your score may improve.
- A paid account looks better than an unpaid account when lenders check your credit history.
How do credit scoring models relate to medical debt?
No type of outstanding debt will improve your credit report, but credit agencies tend to give consumers a little more options to pay their medical bills. Scoring models such as FICO® and VantageScore weight medical debt less than other debts in their algorithms.
Credit is more than a list of numbers and accounts – it’s a big picture of your financial responsibility. Lenders and credit bureaus understand that the need for surgery or expensive medication for a chronic illness does not make you a risky candidate for a loan (unlike charging a yacht with your credit card or a never-paid electricity bill).
And in March 2022, three major U.S. credit bureaus (Equifax, TransUnion, and Experian) made significant changes that reduce the impact of medical bills on consumer credit:
- You now have a year to pay off your medical debt before the collection agencies tell the credit bureaus.
- Medical bills will drop your credit report as soon as they are paid.
- Beginning in 2023, unpaid medical bills under $500 will not appear on your credit report at all.
Also worth noting: Unlike credit card debt, medical debt does not entail late payments or interest. So don’t pay unbearable medical bills by running out of credit cards.
Read more: Understanding Your Credit Score: What’s the Difference Between Your FICO Scores?
The 7 Year Rule: True or False?
The Fair Credit Reporting Act and other laws limit the amount of time certain harmful or damaging information, including unpaid medical bills, may be on a consumer credit report. In most cases, this limit is seven years. (Judgments and bankruptcies may stay longer.)
After seven years, the credit bureaus won’t report your medical debt, and it shouldn’t affect your credit score anymore.
But that doesn’t mean the debt disappears.
When does the 7 year period start?
The clock starts at the “original past due date” of your debt, which is the date of your first missed or late payment. Even if you end up making a payment, the due date still applies.
What will happen after the end of 7 years?
Once outstanding medical debt disappears from your credit report, it will not count against you when applying for a loan, housing, or credit card. This should be a burden off your shoulders. However…
You are still legally responsible for the debt
Technically, you owe the debt until it’s paid off, even if no one is pursuing you for collection.
Debt collectors can still try to collect the debt
That doesn’t mean they will, but debt collection agencies may continue to pursue debts beyond the seven-year mark.
Is it possible to forgive the debt for treatment?
Debt forgiveness or debt settlement may be options for you. These are different processes compared to debt removal – just because a debt disappears from your credit report doesn’t mean it’s forgiven or repaid.
Debt settlement
Once your account goes into collection, you will be able to “settle” by paying an amount less than the total balance. Make sure you understand the terms of the settlement. In some cases, you need to report the remainder (the part you didn’t pay) as income from your taxes.
Debt Forgiveness
Hospitals and other health care providers sometimes offer debt relief programs that either cancel or significantly reduce your balance. Depending on the program, you may need to prove your financial need to be eligible. Writing off debt will not damage your credit history.
Read more: What to do if you get medical bills you can’t afford
Can health care providers sue you for non-payment?
You may have heard horror stories about hospitals suing patients for non-payment. This does happen, and it is very common, especially in large medical institutions in the US.
However, if a health care provider sues you, you still have options. They can’t successfully bring charges if the debt has passed your state’s statute of limitations, the time limit during which someone can sue over a particular contract.
For example, in New York State, the statute of limitations for medical debt is three years. This means that if your debt is more than three years old, you cannot sue for its collection. Each state has its own statute of limitations – you can check your state’s law here – and it’s usually between three and 10 years.
Summary
Although your medical debt won’t be canceled after seven years, it will no longer affect your credit. But even then, your best move is to start a payment plan and keep the bill off your credit report in the first place.
Featured Image: ADragan/Shutterstock.com
