Talk about adding insult to injury. Not only did you experience an illness or injury, but you’re now stuck with medical bills in collections. And as such, a less-than-perfect credit score.
It can be intimidating, scary, and extremely annoying trying to sort this situation out. And if you’re currently dealing with debt collectors, or have simply discovered medical bills on credit report files, you’re in the right place.
How Long Will Medical Bills Stay On Credit Report?
Both paid and unpaid medical bills can legally remain on your credit reports for seven years, from the original date of delinquency. This original date of delinquency occurred with your healthcare provider (hospital, doctor’s office, etc.).
However, your healthcare provider isn’t the company reporting this negative information to the credit bureaus. The collection agency is, they’re what’s called a data furnisher, and this is the company responsible for creating the negative item on your credit reports.
How Your Medical Bill Wound Up In Collections
For the uninitiated, we need to share the actual process of how your medical bill ended up in collections. In part, because this is relevant to resolving the issue.
After your treatment with your healthcare provider, naturally, you were billed. Typically after about six months of non-payment, through insurance or otherwise, the healthcare provider will charge off your account, and send it to a collection agency.
This debt collector will be either working on a consignment deal, where they share any of the revenue collected from your account with the healthcare provider. Alternatively, the collection agency may have purchased the rights to your account, and for just pennies on the dollar.
Will Paying Off Medical Collections Improve Credit?
In short, no. As of today, 2017, simply paying off debt in collections will not improve your credit score. Because the only thing that will happen is a change in the status of the item on your credit reports.
It’ll be changed to a paid collection. This is a negative item that will damage your credit score, typically in the ballpark of 50 to 100 points.
You see, the key to fix credit is to remove this negative item from your credit reports. So it looks as if it never happened, and in some instances, paying off a collection account can be an effective method of getting a clear credit file. Of course, after performing the necessary due diligence, and following our suggestions in this article.
There’s much ado these days about credit scores and collection accounts. Let me break it down for you. The newest version of the FICO credit scoring algorithm (FICO 9) and the VantageScore are much more friendly to medical debt and collection accounts in general.
The problem is today, 2017, there are virtually no lenders or creditors using this new FICO 9 scoring model. Instead, they use the older FICO 8 scoring model, and this model views both paid and unpaid collections very negatively.
Anthony Sprauve, a spokesman for FICO, says collections on your credit report can damage and drag your score down by up to 100 points. By the way, FICO is the only credit score you need to concern yourself with.
The VantageScore is a much less popular model, and created by all three credit bureaus (Experian, Equifax, and TransUnion) to compete with the FICO score. For your information, you have multiple FICO scores, one for each credit report, along with industry-specific FICO scores.
Please, don’t wait for lenders to adopt this new FICO 9 scoring model. Your credit score doesn’t need to suffer, because the reality is lenders may never adopt the FICO 9 model, by the time they do update, we could be on FICO 14 or some other model.
There is no requirement for lenders to get the newest FICO 9 scoring model. Moreover, these businesses must purchase access to the newest scoring model, it’s not free, and surely we’ve yet to hear of too many businesses playing loose with the till.
Most of all you are too important. Your credit score is too important. And your financial future, and family are way too important to just sit on your laurels and wait for anything or anyone!
Dealing With Medical Bill Collections
Are you receiving a constant stream of phone calls, and demanding letters, from debt collectors? Did you know medical bill collections are the most error-riddled type of consumer debt?
The first place for us to start is with the Fair Debt Collection Practices Act (FDCPA). This is federal legislation intended to regulate the debt collection industry. It’s worth reviewing in detail, at your convenience.
In short, debt collectors are required to be honest, and treat you with a modicum of respect and dignity. And as you’ve certainly guessed, collection agencies are fined every year for violating consumer rights under the FDCPA.
If you believe your consumer rights have been violated, you may want to report this debt collector to the authorities. Who would be the Consumer Financial Protection Bureau (CFPB), the Federal Trade Commission (FTC), your state’s attorney general’s office, and potentially a personal attorney.
Whatever you do, please, don’t just ignore this issue. Because it’s virtually guaranteed to become a much bigger headache. Collection agencies, have two options if they’re unable to collect payment.
First, they can sell the rights to your account, to yet another debt collector. This new collection agency will begin contacting you for payment. Along with reporting more negative information on your credit reports.
And the most common path of unpaid medical bills in collections is a civil lawsuit. What’s called a late stage collection agency will get the rights to your account, and their team of in-house attorneys will sue you in a civil court for payment.
If this happens, you’ll be notified via summons. It’s wise to appear, because the debt collector still has to prove their case to the judge, and even if you don’t currently have the financial wherewithal to address the debt.
If you don’t appear, the judge has no choice but to award a default judgement against you. This can result in wage garnishment, liens placed against you and or your property, and potentially even asset seizure.
For full details, investigate your local legislation, because each state has different laws. And worst of all a judgement on credit report files, will destroy your credit score, and virtually overnight.
1. Request Debt Validation
The very first step when dealing with debt collectors is to request debt validation on your account. This is your right as a consumer granted by the FDCPA. This is performing the due diligence.
Because it’s not like you did business directly with this collection agency. They came into possession of your information. Further, requesting validation is essentially saying prove it.
It’s most effective if you make your debt validation request in writing, and send it using certified mail with return receipt requested. This way you’ll have evidence they received your validation request.
You see, they’re required to respond within 30 days of receipt by providing you with the documents, paperwork, and evidence that proves this is, in fact, your account. This paperwork should also show who the original creditor was, the dates of account activity, the total balance, etc.
If they fail to validate your account, then in accordance with the FDCPA, the debt is legally forgiven. In other words, you’re no longer legally responsible for repayment. And the collection agency is supposed to notify the credit bureaus to start getting medical bills removed credit report files, regarding this account.
If they do validate your account, we next want to review this paperwork in detail. We’re looking for your last date of account activity, because you’re not legally responsible for payment, forever.
2. Statute of Limitations
Each state has passed legislation regulating how long you’re legally responsible for repayment of medical debts. Along with many other types of consumer debt. Generally, it’s about seven years from the first date of delinquency.
Once this time window runs out, then the debt must be forgiven. For full details investigate your local legislation because each state has unique laws, concerning this.
And while it definitely applies to medical bills in collections, it also applies to charge off accounts, credit cards, retail, utilities, telecommunications, and many more. The few exceptions include federal income tax, and federal defaulted student loans.
If your account has aged past the statute of limitations time window, then you’re no longer legally responsible for repayment. Your legal, not moral or ethical, strictly legal responsibility lasts as long as the statute of limitations in your state of residence.
Warning. One of the dirtiest, smarmy debt collection industry tactics is to re-age consumer accounts. This is often done illegally, and for obvious purposes. It’s naive to believe any debt collectors are sitting around forgiving anyone’s unpaid medical bills.
3. Negotiate a Settlement Agreement
Assuming your account is validated, and it’s within the statute of limitations, our next step is to negotiate directly with the debt collection agency. And there’s two essential keys here.
First, always negotiate to settle for less, so you’ll be paying off collections for just a fraction of the total balance. Often, you’ll be able to settle for as little as 15% up to about 45% of the total balance.
This is standard operating procedure, and they’ll be happy to accept payment for less. But wait, before you go making payment, we need to get this second part of your agreement in place.
It’s mission critical that you get the collection agency to agree that in exchange for your payment, they’ll stop reporting your account information to all three credit bureaus. If we overlook this part of our agreement, we’ll get stuck with a paid collection on our credit reports.
In this next step, we’ll discuss in detail exactly how to remove collections from credit report files. And this part of your agreement is critical to success. And we need to debunk a popular internet myth.
You may have heard about the pay-for-delete method of dealing with collection agencies. The idea, is you demand the collection agency delete the negative item from your credit report, in exchange for payment.
This sounds perfect. And it couldn’t be further from the truth. In our over a decade of helping folks fix bad credit, we’ve yet to hear of one individual or collection agency actually perform this agreement.
Nonetheless, it’s a popular myth, that we see all over the internet. And so is Santa Claus. Collection agencies, simply will not ever do this. However, they will happily agree to stop reporting your account information.
How To Remove Medical Collections From Credit Report
Let’s now discuss how to remove medical collections from credit report files, because as we now know, this item is dragging your credit score down. And to do this, we’re going to look at how to dispute a credit report item.
This is how we challenge an item on our credit reports. And we’ll need to exercise more of your consumer rights, specifically those granted by the Fair Credit Reporting Act (FCRA).
This federal legislation enables you to dispute and challenge any item on your credit reports, so long as you believe it’s inaccurate, misleading, or made in error. There’s three ways to dispute credit report items: online, over the phone, and by mail.
Once the credit bureaus get your dispute, and they first have to deem it valid, which is another conversation for another time and place. So make sure to sign up for our free newsletter for more credit score help, and join our congregation.
Once the credit bureaus get your dispute and deem it valid, they’re required to investigate the item. During which, they’ll contact the collection agency, in this case, and ask them to verify your account.
As per your settlement agreement with the collection agency, they won’t verify your account. And in compliance with the FCRA, this means the credit bureaus must remove the item from your credit reports. This is how to clean your credit report dings, blemishes, and remove negative items, and legally.
Look, this isn’t an easy road, to put it nicely. You’re dealing with people and companies whose priorities have no concern for your credit score. You must be your own credit score advocate.
And in full disclosure, if you go at this alone, you’ll need to be tough. Debt collectors, and even the credit bureaus, are fined consistently for violating consumer rights. We all know the collection agencies don’t always follow the rules.
Did you know all three credit bureaus in just 2015 paid $6 million in a settlement with 31 state attorney generals for allegedly violating consumer rights under the FCRA? It’s true, and that’s in addition to many other fines from our federal government, along with personal lawsuits.
When all is said and done, your credit score is very much like your Grade Point Average (GPA) in school days past. It doesn’t matter if you’re acing all your courses, if you’re failing underwater basket weaving, because this negative mark is going to decimate your overall GPA.
This is also true of your credit score. And why it’s of paramount importance to clean credit file dings, blemishes, and remove negative items. We encourage our members to consider professional, legal, and effective credit repair companies to help with this.
Because in 2016 alone, over 9 million negative items were removed from consumer’s credit reports. One of the best firms is The Credit Pros. They’ve helped client’s successfully remove medical bills, medical collections, late payments, charge offs, judgements, liens, and so many more negative credit report items.
Get a free credit consultation with a certified FICO professional by calling toll-free 1-877-418-7596. And for more tips, techniques, and strategies about how to improve your credit score with Dan Willis, sign up for our free newsletter and join our congregation.
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