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Medical collection accounts may impact credit scores

Changes to the way that medical debts are treated on credit reports may be helpful to some Michigan residents. Starting on Sept. 15, 180 days must pass before an unpaid medical debt can appear on a person's credit report. In addition, a medical account in collections will be deleted if the balance is eventually paid for by a health insurance provider. While these changes may help, they may not help as many people as anticipated.

Of the 43 million Americans who have medical collection accounts on their credit reports, only 8 percent will be listed as paid. Even fewer will be paid by an insurance company. FICO found that roughly 200,000 people will be helped by the 180-day credit reporting waiting period, which is less than 0.1 percent of everyone who has a credit report. Furthermore, many medical providers already wait 180 days before reporting late payments on a credit report.

If a person has a collection on his or her credit report, it could drop that person's credit score by anywhere from 40 to 100 points. A lower credit score may make it harder to apply for loans or find housing. The insurance rates a person may be entitled to may also be influenced by his or her credit score.

Individuals who are looking for debt relief may benefit from filing for bankruptcy. Chapter 13 bankruptcy may make it possible to reorganize debts while Chapter 7 bankruptcy may allow a debtor to have some or all debts discharged in weeks. An attorney may be able to help an individual determine which type of protection that he or she may be entitled to. Legal counsel may also describe the benefits of bankruptcy such as a temporary halt to creditor collection actions.

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