What to know about how medical debt affects your credit rating

The three largest credit reporting agencies — Equifax, Experian and TransUnion — this month changed the way medical debt affects people's credit ratings.

Medical debt has become pervasive, as health care and insurance costs continue to rise, while income has not kept up with inflation. About 23 million people in the United States — roughly 9% of the population — owe at least $250 in medical expenses, according to the Peterson-Kaiser Family Foundation Health System Tracker.

On July 1, ratings agencies acted to remove medical debt from your credit report as soon as it is paid. This applies to new debt or existing debt that may be bringing down your credit score.

At the same time, medical debt will not be recorded in your credit rating until it has been delinquent for one year. Previously, medical debt could appear in credit ratings after six months.

Beginning next year, only medical debt of at least $500 can be reflected in your credit rating.

Debts such as unpaid credit card or utility bills, and missed car loan or mortgage payments are considered a reflection of how financially responsible and stable a person is, said Jim Francis, a partner at the Philadelphia consumer rights law firm Francis Mailman Soulimas.

But research has found that most medical debt is not a reflection of a person's financial acumen. Medical bills are often unexpected, the cost of care can be difficult to find out in advance, and billing errors are common.

Most medical providers don't report medical debt to credit agencies. But when hospitals or doctor's offices sell medical debt to a collection agency (usually only after it has been delinquent for several months), it may be reported.

To make sure medical debt isn't reflected in your credit score, check it regularly.

You may have heard that checking your credit score can lower it. Not true. "Hard" inquiries — when a lender checks your credit report — can lower your rating by a few points. But consumers can check their own credit report as many times as they want without penalty.

Pay your bills as soon as you're able. If you can't afford to pay the bill in full, contact the provider to find out whether you qualify for financial assistance or a payment plan.

Contact the provider and your health insurer right away if you think you've been billed in error, Francis said. Incorrect medical bills can take months to correct, and putting off the task will only further delay the process.

Learn more about your rights on the Consumer Financial Protection Bureau website, consumerfinance.gov/medicaldebt.

Gantz writes for the Philadelphia Inquirer.