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Paid Medical Bills Can Still Wreck Credit

March 4, 2012 by staff 

Paid Medical Bills Can Still Wreck Credit, Here’s an added challenge if you’re struggling to pay a medical bill: Your credit can be wrecked if the doctor or hospital kicks your unpaid bill to a collection agency.

A growing number of Americans are discovering this unexpected land mine when they refinance or take out a loan. The Commonwealth Fund, a private foundation that sponsors health care research, estimates that 22 million Americans were contacted by collection agencies for unpaid medical bills in 2005. That increased to 30 million Americans in 2010.

People with wrecked credit scores include those who were just trying to resolve a dispute with their insurance company. It includes people owing less than $250. And even after the bill is paid, the record of the collection action can stay on a credit report for up to seven years.

That can drag down a credit score and drive up the cost of financing a home.

Mike and Laura Park thought their credit record was spotless. The Texas couple wanted to take advantage of low interest rates, so they put their house on the market and talked to a lender about a mortgage on a bigger home in the Dallas-Fort Worth suburbs.

Their credit report contained a shocker: A $200 medical bill had been sent to a collection agency. Although since paid, it still lowered their credit scores by about 100 points, and it means they’ll have to pay a discount point to get the best interest rate. Cost to them: $2,500.

An estimated 3.4 million Americans have paid-off medical debt lingering on their credit reports, according to the Access Project, a research group funded by health care foundations and advocates of tougher laws on medical debt collectors.

Among them are Nathen and Melissa Cobb of Riverton, Ill., who tried to refinance their home last year. They didn’t qualify for the loan because of $740 in medical bills that had been sent to a collection agency. The Cobbs were surprised because the bills — nearly a dozen small copayments ranging from $6 to $280 — had been paid before they tried to refinance. The collection action took their credit score from good to mediocre and is likely to mar their credit report for years.

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