Medical expenses can cripple consumer credit scores
Oct 28, 2013 Sean Albert
At some point in nearly everyone's lives, people have to seek out professional help from a doctor. Outside of normal vaccinations and checkups required for American schoolchildren, perhaps this might occur when a woman gives birth or a man breaks his arm in a fall at the worksite. No matter the cause, chances are that some of the costs of these trips are going to have to be paid for out of pocket.
A lot of the time, insurance plans will cover the majority of the expenses incurred. However, what about if the procedure the patient underwent was extremely expensive to begin with, or that individual doesn't actually have insurance? This was the reality that many people experienced during the Great Recession. A number of citizens were laid off from their positions and therefore lost their employer-based coverage, which could be very damaging and ultimately costly if they then got sick or hurt.
As such, some former patients, after receiving the bill for health care services rendered, have a very important decision to make. They often have to let something slip in order to make ends meet elsewhere. For instance, it might come down to either paying the hospital bill or making a monthly mortgage payment. A lot of the time, the medical costs fall by the wayside so individuals are able to maintain their lifestyles and provide for their families.
For one reason or another, many people don't think that medical debt affects their consumer credit scores, for one reason or another, but they could not be more wrong. Much like with utilities bills or student loans, debt collection agents will likely get involved in the event of non-payment, and people will see adverse effects on their credit histories.
This can send individuals into a vicious spiral as far as finances go. And with the costs of medical technology constantly on the rise, this scenario likely won't end anytime soon. So, consumers need to be educated about what an overdue medical bill means for them and the big options they have to avoid this situation in the first place.
The cold, hard truth about medical debt
If consumers let their medical bills go for too long without paying them off, these debts will be bought by a debt collection agency. Debt collection workers, simply trying to do their jobs, then have to tip off credit bureaus to the fact that people are skirting their financial responsibilities.
Bankrate.com reported that one in six credit reports have at least one instance of medical debt collection, while two in every five contain lower scores because of such incidents. This sends the owners of the debt into a downward spiral - they couldn't pay their bills, but they're not going to be able to easily open a new line of credit for as many as seven years, until this mistake comes off their histories.
There are calls for credit bureaus and lenders to stop using medical debt against consumers within credit scores, because many times, these bills are a necessary evil. The news source reported that there is a lot of controversy surrounding the topic, but for now, changes are not expected to come any time soon, so businesses within the sector should remind consumers about their responsibility.
Another option emerges
However, as many people know, sometime's the money just isn't there, and between savings and available lines of traditional credit, a former patient just can't amass enough cash to pay medical bills despite their best efforts. Considering the number of people who have been laid off from their jobs in the last few years, this doesn't seem too outlandish.
That being said, there is at least one more option that might greatly benefit consumers hurting financially - they can seek out short term lending companies and explore their alternative finance options. This can often be better than alternative approaches, as these sorts of operations tend to eschew the normal credit score for more comprehensive markings of whether or not an individual is fiscally responsible.
For instance, many of these small dollar lenders take into account someone's Payment Reporting Builds Credit scores before they look at a traditional model. The former takes into account an individual's penchant for paying off utilities bills on time, rather than only noting the instances when payments were late. This can provide better proof of a consumer's creditworthiness.
Another positive factor about these types of loans is the fact that they're almost always approved within a day or two of applying - something that can be invaluable for those in dire financial straits because of health issues that were out of their hands. Money can be obtained fast and a loan can be used to meet the unexpected expense until the former patient can get back on his or her feet - often literally and figuratively.