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Medical Debts Do Not Always Hurt a Credit Score

By Sally Maison
Published: Friday, December 18th, 2009

Medical expenses are some of the most unexpected things that can throw a person’s finances off. However, unlike most debts, they are something that consumers have no control over. With the economy still lagging way behind its former performance, many Americans are finding themselves way behind their medical debts. For this reason, the public is worried that their credit score would be very low the next time they do a check.

Medical Debts Do Not Always Hurt a Credit ScoreCommonwealth Fund recently published a document noting that 41 percent of all American adults were carrying medical debts back in 2007. Back in 2005, there were only about 34 percent of them. It means that currently, there are around 72 million people or almost half of all working adult citizens that have medical debts.

Experts say there might be some good news for consumers who worry that their credit score will be pulled down because of their ongoing medical debt. The good news is that medical debt does not always hurt a credit rating or score. Unfortunately, when it does, it could haunt a credit rating for several years.

According to finance advisers, about 30 percent of a person’s credit score is made up of his credit utilization ratio. This is a measure of how much a person uses his available credit. The higher a utilization is, the lower a credit score becomes. That is why a person who maxes out his credit card will see his score drop.

However, unlike card debt, medical debt is not counted in computing a person’s utilization ratio. This means that a person’s credit score will not be affected if he acquires medical debt as long as he keeps up with his payments.

Experts note that, unlike card debts, medical debts do not get reported unless they are not paid on time. If a person becomes delinquent on his bills, the hospital will send the bill to a collection agency. The agency, in turn, will contact the bureaus and will record the late payments on a person’s credit report.

Since 35 percent of a FICO credit score is determined whether a person pays his bills or not, a late payment will definitely pull a credit score down. The bureaus penalize a late payer because, statistically, a person who pays late once is likely to do so in next occasions. How much a credit score suffer depends on the rest of a person’s payment history.

Like most late payments, a late medical bill will affect a person’s rating for as long as seven years.

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