Health Records: Impacting Your Loan Eligibility

Medical debt is handled differently from other types of debt. It is a poor predictor of a borrower's creditworthiness, and credit bureaus treat it differently from other delinquent accounts. Medical debt does not affect your credit score unless it is reported to a credit bureau, and this rarely happens. However, it can be turned over to a collection agency, which may report it. Medical debt can be removed from credit reports if it has been paid or is being paid by insurance. It is important to note that medical information can be used to determine eligibility for credit, and it can impact the conditions of a loan.

Does Health Record Affect Loans?

Medical debt and credit scores

Medical debt is treated more leniently in credit scoring than other types of debt. Credit bureaus treat medical debt differently from other delinquent accounts, and consumers have greater protection against healthcare bills weighing down their credit. Medical debt generally does not carry late fees and requires low or no-interest payments. It also takes longer to appear on your credit report and is less likely to result in a lawsuit.

However, like any debt, unpaid medical bills can hurt your credit rating and restrict your ability to borrow, buy property, or get a job. The most important factor in credit scoring is payment history—essentially, how regularly you pay your bills on time. If you hold off on paying large healthcare bills due to lengthy negotiations with providers and insurers, your credit score may suffer. Medical debt does not affect your credit score unless it is reported to a credit bureau, and usually, no hospital or medical provider will report the debt directly. However, they might turn it over to a collection agency, which could report it.

In 2023, the three major credit agencies removed medical debts under $500 from consumer credit reports. The remaining debt is large debt amounts that exceed the $500 threshold. The Consumer Financial Protection Bureau (CFPB) has estimated that the new credit reporting rule will boost the credit scores of people with medical debt by an average of 20 points. Higher credit scores increase the likelihood that people will gain approval for loans and lower their interest rates.

The CFPB's research reveals that a medical bill on a person's credit report is a poor predictor of whether they will repay a loan. The CFPB expects the rule to lead to the approval of approximately 22,000 additional affordable mortgages every year. The rule bans consumer reporting agencies from including medical debt information on credit reports and credit scores sent to lenders. This will help end the practice of using the credit reporting system to coerce payment of bills, regardless of their accuracy.

Health conditions and loan eligibility

A person's health condition can impact their eligibility for loans. While medical debt is treated more leniently in credit scoring, it can still affect a person's ability to secure a loan. Medical debt is considered "civil debt", and non-payment can result in a creditor or collection agency suing the debtor in civil court and seeking liens on their property or garnishment of their wages.

Credit bureaus such as Experian, Equifax, and TransUnion treat medical debt differently from other types of delinquent accounts, and consumers have greater protection against healthcare bills weighing down their credit. For instance, there is a waiting period of 180 days before medical debt is listed on a credit report, allowing time for disputes with medical providers or insurance companies to be resolved. Additionally, medical debt is expunged once it has been paid or is being paid by insurance. These rules reflect the view that medical debt is not necessarily an indicator of credit risk.

However, a person's medical condition can be a factor in loan eligibility decisions. In some cases, creditors may require borrowers to obtain a debt cancellation contract, debt suspension agreement, or credit insurance product from a non-affiliated third party as a condition of loan approval. This practice is considered inconsistent with exceptions outlined in the Consumer Financial Protection Bureau's regulations, which state that creditors should not take into account a consumer's physical, mental, or behavioral health condition, history, type of treatment, or prognosis when determining eligibility for credit.

It is important to note that medical debt does not affect a person's credit score unless it is reported to a credit bureau, and medical providers typically do not report debt directly. However, they may turn it over to a collection agency, which could report it. This can result in a stream of demands for payment and negatively impact creditworthiness.

To mitigate the impact of medical debt on loan eligibility, individuals can consider negotiating with medical providers or collection agencies for a better price or setting up a payment plan. Additionally, seeking financial assistance from programs like Medicaid or local charities may help in managing medical expenses. Regularly reviewing credit reports can help individuals identify any medical debt that has gone to collections and take corrective actions to improve their credit health.

Health professions student loans

The HRSA offers several health professions loans, each with its qualification requirements. For instance, the Loans for Disadvantaged Students (LDS) Program is for full-time students from disadvantaged backgrounds seeking a degree in nursing. Nursing Student Loans (NSL) are for nursing students enrolled at least half-time, pursuing a diploma or degree. The Primary Care Loans (PCL) program requires students to commit to residency training in primary care and work as a primary care physician after graduation.

It's important to note that not all schools offer health professions student loans, and borrowing limits vary by institution. To apply, students must fill out the Free Application for Federal Student Aid (FAFSA). After submitting the FAFSA, the school will send a financial aid award letter, which will include health professions student loan options if the school offers them and the applicant qualifies. The exact loan amount is determined by the student's need and fund availability.

While health professions student loans can provide much-needed financial assistance, it's crucial to remember that any debt, including medical debt, can impact an individual's credit score and ability to borrow or obtain credit. Unpaid medical bills can tarnish one's credit history, potentially leading to difficulties in borrowing money, obtaining credit, or even securing employment. Therefore, it's essential to manage health professions student loans responsibly and prioritize them alongside other financial obligations.

Medical billing advocates

Many hospitals have patient advocates on staff who can help patients resolve their medical bills. Patients can also search online for advocacy groups that help with medical bills in their state or for a particular disease or condition. Medical Bill Gurus, for example, offers patient advocacy services on a contingency basis, charging a fee only if their intervention leads to a successful outcome and the patient saves money. They have over 20 years of experience in helping patients reduce or eliminate their medical bills. MedWise Insurance Advocacy is another firm that provides medical billing and consulting services to legal and medical professionals, as well as individuals in the New York, New Jersey, and Connecticut Tri-State area.

Medical debt and collection agencies

Medical debt is treated more leniently in credit scoring than other types of debt. It generally does not carry late fees and requires low or no interest payments. It also takes longer to appear on your credit report and is less likely to result in a lawsuit. However, unpaid medical bills can still hurt your credit rating and restrict your ability to borrow, buy property, or get a job. This is because payment history is the most important factor in credit scoring. If you hold off on paying large healthcare bills due to lengthy negotiations with providers and insurers, your credit score may be affected.

Medical debt does not affect your credit score unless it is reported to a credit bureau, and usually, no hospital or medical provider will report the debt directly. However, they might turn it over to a collection agency, which could report it. In a 2018 survey, nearly 30% of adults who had recently faced large healthcare expenses said the bill had ended up with a collection agency.

If a doctor or hospital hires a collection agency to pursue payment, you can expect a steady stream of phone calls, letters, and emails demanding payment. The federal Fair Debt Collection Practices Act outlines your rights and options when dealing with collectors. Nonpayment is not a crime, but a creditor or collection agency can sue you in civil court and seek liens on your property or garnishment of your wages.

There are several medical debt collection agencies that healthcare providers can partner with, including IC System, Cedar Financial, and American Profit Recovery. These agencies work with healthcare providers to sustain their cash flow and improve their revenue cycle. They employ various strategies, such as negotiating with banks on the debtor's behalf to create a monthly payment plan.

Frequently asked questions