Medical debt can be crippling. Even the most financially responsible people could wind up with a surprise four- or five-figure hospital bill bigger than their emergency budget.
All this unpaid debt keeps collection agencies busy in the United States. In the second quarter of 2021, the Consumer Financial Protection Bureau estimated that more than half of all bills in collections — about 58% — were medical bills.
But how long does medical debt stay on your credit report once it gets to the credit bureaus?
You may have heard that medical debt disappears from credit reports after seven years, never to be seen again.
But is this rumor too good to be true? Does medical debt actually go away?
Well, yes and no. Though medical debt isn’t magically erased after seven years, it does have less of an effect on your overall financial health.
How does medical debt impact your credit report?
Here’s the progress of a typical medical bill:
Step 1: The healthcare provider requests payment
If you have trouble paying the medical charges in full right away, most providers will let you set up a payment plan.
Remember to check the line items on the bill to make sure you weren’t charged for any services you didn’t receive and that your insurance (if you have coverage) was billed correctly.
When you settle the bill at this stage, even if you’ve only made a partial payment, it won’t go to Step 2.
Read more: Why is double billing by doctors so common?
Step 2: The healthcare provider sells your debt to a collection agency
Hospitals and other care providers usually wait for 60 to 120 days before they turn over unpaid medical bills to collections. If you haven’t taken action on your bill for two to four months, debt collectors will start calling.
In Step 2, you can still work out a payment plan. Debt collectors in the U.S. must give you a grace period of 180 days (about six months) to settle the medical debt. As of July 2022, this grace period is extended to a full year.
Step 3: The collection agency reports the debt to the three major credit bureaus, and it hits your credit report
The grace period is designed, so you have time to negotiate your debt with your insurance provider, the collection agency, or the hospital itself.
Step 3 kicks in if your bill is still delinquent — meaning you haven’t taken any action to pay it off — after the grace period. At this point, the bill is on your credit report and can hurt your credit rating.
Step 4: The debt stays on your credit report for seven years
How long does medical debt stay on your record? Unpaid bills, even those with a small balance, remain on a credit report for seven years or until they’re paid.
Read more: 5 ways to handle a surprise medical bill
Should you pay off medical debt after it’s reported to your credit?
You may think the damage is done after Step 3, but it’s still worthwhile to make payments if you can, for a few reasons:
- After July 2022, medical bills sent to collections will drop off your credit report once they’re paid in full.
- Several newer credit scoring models — including the unique FICO® score model — ignore paid collection accounts, so your score may improve.
- A paid account looks better than an unpaid account when lenders review your credit history.
How do credit scoring models treat medical debt?
No type of outstanding debt’s great for your credit report, but credit agencies tend to give consumers a little more leeway for medical bills. Scoring models like FICO® and VantageScore weigh medical debt less than other debts in their algorithms.
Credit is more than a list of numbers and accounts — it’s a general picture of your financial responsibility. Lenders and credit bureaus understand that needing surgery or taking pricey medication for a chronic condition doesn’t make you a risky candidate for a loan (as opposed to charging a yacht to your credit card or never paying the electric bill on time).
And in March 2022, the three major U.S. credit bureaus (Equifax, TransUnion, and Experian) made some significant changes that lessen the impact of medical bills on consumer credit:
- You now have a year to settle medical debt before collection agencies report to credit bureaus.
- Medical bills will drop off your credit report once they’re paid.
- Starting in 2023, unpaid medical bills under $500 won’t appear on your credit report at all.
Also worth noting: unlike credit card debt, medical debt doesn’t carry late fees or rack up interest. So don’t settle unaffordable medical bills by maxing out your credit card.
The “7-year rule”: true or false?
The Fair Credit Reporting Act and other laws limit the time that certain harmful or damaging information, including unpaid medical bills, can be on a consumer credit report. In most cases, this limit is seven years. (Legal judgments and bankruptcies can remain for longer).
After seven years, your medical debt won’t be reported by the credit bureaus, and it shouldn’t affect your credit score anymore.
But that doesn’t mean the debt disappears.
When does the 7-year period start?
The clock starts on your debt’s “original delinquency date,” which is the date of your first missed or late payment. Even if you eventually make the payment, the delinquency date still stands.
What happens after the 7 years end?
Once outstanding medical debt drops off your credit report, it won’t be counted against you when applying for loans, housing, or credit cards. That should be a weight off your shoulders. However…
You’re still legally responsible for the debt
You do technically owe the debt until it’s paid, even if no one is pursuing you for collection.
Collectors can still try to collect the debt
This doesn’t mean they will, but collection agencies can keep pursuing the debt after the seven-year mark.
Can your medical debt be forgiven?
Debt forgiveness or debt settlement may be options for you. These are different processes from removing a debt — just because a debt drops from your credit report doesn’t mean it’s forgiven or settled.
Once your bill moves to collections, you may be able to “settle” by paying an amount that’s less than the total balance. Make sure you understand the terms of the settlement. In some cases, you’ll need to report the remaining balance (the part you didn’t pay) as income on your taxes.
Hospitals and other healthcare providers sometimes offer debt forgiveness programs that either cancel or significantly reduce your balance. Depending on the program, you may have to prove your financial need to be eligible. Debt cancellation doesn’t harm your credit score.
Can healthcare providers sue you for nonpayment?
If the healthcare provider does sue you, though, you still have options. They can’t successfully press charges if the debt has passed your state’s statute of limitations — a time limit cutoff for which someone can sue about a certain contract.
For instance, in New York state, the statute of limitations for medical debt is three years. This means if your debt is more than three years old, you can’t be sued to recover it. Each state has a different statute of limitations — you can look at your state’s law up here — and they typically range from three to 10 years.
While your medical debt won’t be erased after seven years, it will stop affecting your credit. But even so, your best move is to start a payment plan and keep the bill from hitting your credit report in the first place.