Almost half of all accounts that go into collections are medical debt. This makes medical debt the leading reason why one out of every six Americans has a medical debt in collections on their credit report. Having a debt listed as in collection can reduce a person's credit score by as many as 100 points. Those who have higher credit scores are more likely to suffer compared to those who have a lower credit score.
However, there are some who say that those who fail to pay a medical debt should not suffer at all. One reason is because failing to pay a medical debt is not always indicative of whether or not someone can pay the rest of their debts. Another reason is that most medical debts go into collection while a patient is appealing the debt or because of an error by a medical billing department. In this regard, a leading credit scoring agency has modified its policy on these types of obligations.
Those who have an unpaid medical debt got some welcome relief when FICO upgraded its scoring algorithms. Now, debts in collection that are less than $100 are not counted when calculating a credit score. Another company has decided to not penalize those who have accounts in collection that have been paid. For the most part, an account that goes into collections stays on a credit report even after the balance has been paid.
A large medical debt could put a financial strain that may be difficult to overcome. However, it may be worthwhile to look to bankruptcy for a fresh start. Those who file a bankruptcy petition may have medical debts discharged in as little as a few weeks. A bankruptcy attorney may also be able to talk about other benefits of filing such as a stay against further collection activities.
Source: Bankrate, "How will unpaid medical bills hurt credit?", Janna Herron, Oct. 15, 2013