Medical debt, your Credit and a home – Oh My!

Medical bills and the medical industry/business, it’s a tricky thing for majority of consumers who do not have a clue how it works. You go to the hospital and it seems you get 15 people sending you bills. It works like that a lot depending on what happen to you.

Have insurance? Fantastic! Except don’t for one second think they cover everything, when going to the hospital or doctor in this day and age you need to look at this from a business standpoint. Don’t think that people are competent at their job so if you didn’t get a bill then it’s not your problem.

It is! Non-paid bills, even one that forgot to be sent out will go to collections, go on your credit and the moment it does drops your credit score.

One time I saw a $3.00 medical collection drop a score 43 points, I can only assume it was an aspirin but the point of that story is it’s not the amount majority of the time but a new negative account hitting your credit.

When you try to buy a home (or refinance one) you may hear the loan officer tell you “I don’t care about the medical accounts”. The mistake you make is that what the loan officer is actually saying is he/she does not care about the medical “debt” as mortgage lenders do not count medical debt against you but if the accounts are on your credit then from a secondary standpoint it is a factor that may or can be affecting you and your credit score.

Typically a bill will not be sent to collections until it has not been paid for the standard 90-120 days. There are medical facilities that send them to collections after 60 days as they do not have the staff or department to do that or that it’s just easier to outsource that part of their business.

Here is the kicker, if it hits your credit then your score drops, let’s say it drops your credit 70 points which is very realistic, paying it may bump it up 40-50 points. Hopefully those are the amount of points you need to get the home. If it’s not and you need all 70 points then you need to put your detective hat on. When was the services performed? What is the medical centers procedure for billing services and when do they send bills and then when do they send the follow up round? Do they have your correct address? If you’re lucky and they have the wrong address you have a strong case to get them to delete the account if it’s paid. Threatening a lawsuit in small claims court is a smart move but make sure you’re not yelling when you say that.

The old days of “pay for deletion” unfortunately are gone by most accounts. While some companies do them, most do not unless you can prove that a mistake was made and then leverage that to get a deletion letter.

Any good sized debt you acquire you should ask about financial assistance, depending on the income you make if you do not make much they can write off a good portion of that debt for charity purposes and then establish a payment program with you.

An article I recently read about this gave some inaccurate information so want to clarify if you read it. Most likely it was just a mis-print but here is how medical debt and lawsuits work.

If you get sued due to a medical debt then if you are going to buy a home then that lawsuit MUST be paid. There are no options. If you own a home and you are selling it and there is profit in the sale of the home the judgment gets paid before you get your profit. The judgment will show up on a public records search the banks do.

If you’re aiming for a discount from the collection agency they will not give you a deletion letter also. It’s either one or the other IF they are will to delete the account.

If your trying to buy a card most car lenders do not care about judgments, but credit card companies do seem to care about it especially lenders that offer secured credit cards. While information is limited when applying for this card speak to a manager and ask if a judgment disqualifies you for the card. They will hopefully be able to answer your question.

So in summary, medical debt is a double edge sword. Mortgage lenders do care about the medical accounts on your credit as they affect your score, they just do not have to worry about the medical debt attached to the account.

NOTE: a 30 day recent late payment can drop your credit score anywhere typically from 60-90 points depending on the rest of your credit file.

*** Want to learn more about how the credit system works? Buy my book for easy to understand concepts of how credit works and how lenders look at you at you. Contact me at wayne@waynethecreditguy.com