Medical debt is damaging the credit of right around 30 million people, according to the latest figures I’ve seen. What floors me about this problem is how it’s both completely stealth and something that’s so easily fixed once you know about it.
You would expect that damaged credit because of medical debt would be a problem for the uninsured. But the untold story here is that people with insurance get their credit trashed because of balance billing mix-ups.
Here’s the scenario: You give your insurance card over, you get seen by the doctor and then you get a bill in the mail for the portion that insurance didn’t pay. So you pay it and it’s done, right? Well, not exactly. You pay it and you think you’re done.
But because medical back-office billing is often the most chaotic part of any doctor’s practice, something can easily go wrong. You wouldn’t know until you try to get a mortgage or a car loan and you’re being sucker-punched by small piddling bills that you were never informed about damaging your credit.
The VantageScore people now no longer consider any collection item in your score if it’s paid in full — though not many businesses use the VantageScore to make lending decisions. FICO, however, won’t make this change even though it distorts your true picture of how you handle credit.
The concession FICO has made is that they’ll give you a pass on any collections under $100. But obviously, the whole problem with medical billing needs to be looked at a whole new way so you don’t wind being put into a penalty box for 7 years because of a medical industry that is so messed up.
Until that time, this is one of the reasons I encourage you, six months before you buy a house, to pull all three of your files at AnnualCreditReport.com to look for weirdo stuff. Do something about it while you have time to make a difference, before you lose the house deal or the refi deal.