If you’ve discovered medical bills on your credit report it’s important to know, you’re not alone. According to the Consumer Financial Protection Bureau (CFPB) roughly one in every five people have medical collections on their credit report, or around 43 million Americans.
It’s surprising to learn that over 50% of these folks suffering have insurance. This trend will only rise as an unintended consequence of Obamacare has been skyrocketing deductibles. Did you know medical debt is the leading cause for bankruptcy?
Medical Bills Impact On Credit Score
The worst part of medical collections is the devastating impact on your credit score. According to Anthony Sprauve, the spokesman for myFICO.com, debt collections can cause your credit score to drop by as much as 100 points.
If you happen to be a novice to the world of credit, FICO is the company that calculates your credit score by using the information contained on all three of your credit reports (Experian, Equifax, and TransUnion). It’s rumored that an update to the FICO scoring model will no longer count medical bills under $100, but that’s an update to be implemented in the coming years.
Avoid The 2 Deadly Sins When Dealing With Medical Collections
It’s unfortunate that most consumers aren’t familiar with the world of credit and debt in our country because this lack of knowledge causes them to commit two deadly sins, with shocking frequency. These well intended folks will often just pay a delinquent debt in collections with the false belief that is some how to boost your credit score.
This simply changes the status of the collection item on your credit report to a paid collection. Moreover the credit scoring algorithm will view this as recent activity, as in you’ve been behaving less than perfectly and lately. Instead of taking financial responsibility.
This results in your credit score getting smacked and potentially lowered by up to 100 points. After all a paid collection isn’t a positive item that will build credit, it’s still derogatory and damaging listing.
The second deadly sin is to ignore collections and hope the problem will just disappear like a fart in the wind. This is the forsaken path that frequently leads to a civil lawsuit.
Eventually a collection agency will purchase the rights to your account, and they’ll sue you for repayment. This can cause a judgment and possibly your wages being garnished, depending upon your state of residence. Furthermore a judgment is kryptonite to your credit score.
3 Consumer Rights For Medical Bills In Collections
It’s mission critical that you follow these three steps if you’re dealing with the fallout of medical bill collections and aggressive debt collectors. Medical bills are assigned or sold to a collection agency after about 90 to 120 days of delinquency.
However just because you get a phone call or threatening letter demanding payment doesn’t always translate into you legally owing an alleged debt. In fact the debt collection industry is far from law biding. In 2013 Transworld Systems, one of the biggest medical debt collectors, paid $3.2 million to the Federal Trade Commission (FTC).
This was part of a settlement for violating consumer rights and the Fair Debt Collection Practices Act (FDCPA). The fine was issued to the parent company Expert Global Solutions of which Transworld Systems, NCO Financial Systems, North Shore Agency, and ALW Sourcing are all subsidiary companies. The point being collection agencies don’t always follow the rules or respect consumer rights and they’re consistently paying fines to the FTC.
1. Account Validation
The most powerful consumer weapon to fight collection agencies is to request account validation. This should be done in writing and using certified mail, so you’ll have evidence of your request. The FTC has issued fines to debt collectors for ignoring consumer validation requests.
This will force the collection agency to respond with the documents, paperwork, and evidence that proves they own your account and the collection rights on the debt. If they don’t validate your account then you’re no longer legally responsible for payment. They’re also suppose to notify the credit bureaus to have them remove collections from credit report files regarding this account.
If your debt is validated then you should examine the date of your account. You see, you’re only legally responsible for medical debt for around seven years from the first date of delinquency. This is called the statute of limitations and it does vary from state to state, so please investigate your local listings.
If this legal time window has expired then you’re no longer responsible for the account. One of the common debt collection strategies is to re-age consumer accounts, so they can continue to attempt to collect payment.
Did you know one collection agency CEO says that about 20% of the medical bills in collections that his firm services are inaccurate. This is overwhelming evidence that you must exercise your rights and follow these guidelines because the debt collectors are betting you won’t.
2. Negotiate a Settlement
If your account is valid and within the legal time frame your next step is to negotiate a settlement. It’s vital that you negotiate to pay less than the balance. Typically you’ll be able to settle your account for 10% to 40% of the total. For instance with a $300 debt you may be able to settle it for merely $100.
Now the key is to get the collection agency to agree to stop reporting your account information to the credit bureaus in exchange for your payment. If you neglect this step then you’ll be slapped with a paid collection which as we’ve discussed can damage your credit score by as much as 100 points.
3. Removing Medical Bills From Credit Report
This third and final step is how to remove collections from credit report files and we’ll be exercising your rights granted by the Fair Credit Reporting Act (FCRA). This legislation gives you the right to dispute any item on your credit report you believe to be questionable, inaccurate, and in error.
The credit bureaus are required to investigate your dispute, during which they’ll contact the collection agency for verification of your account. As per your settlement agreement the collection agency won’t verify your account.
In accordance with the FCRA the credit bureaus must remove items that are unverifiable. The big challenge is having your rights respected and fully understanding how to exercise them. Every law on the books has been passed to protect you and all consumers.
We encourage our members to consider professional, legal, and legitimate credit repair companies to help. Because in just 2016 over 9 million negative items were removed from consumer’s credit reports.
One of the best firms is The Credit Pros. They’ve helped their client’s successfully remove all sorts of negative items including: late payments, collections, charge offs, judgements, liens, and many more.
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 to repair bad credit with Dan Willis, sign up for our free newsletter and join our congregation.
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