How Medical Debt From COVID-19 Could Impact Your Credit Score

Unpaid medical bills can hurt even the best credit scores.

As one of the few developed nations without socialized healthcare, the U.S. has battled with medical debt for years. Thousands of people declare personal bankruptcy every year due to overwhelming medical debt -- even before the novel coronavirus infected millions of people in the U.S.

The FFCRA and the CARES Act helped make aspects of the virus less costly; testing and vaccination are (ostensibly) free for those with insurance. But if you wind up with the virus and need treatment, you're at the arbitrary mercy of your insurer. And, if you're one of the tens of millions without insurance -- a number that's grown for the last three years -- testing alone could set you back some dollars.

Any amount of hospitalization, or outpatient services if you're a coronavirus long-hauler, could mean thousands of dollars' worth of medical debt from getting the virus. Unfortunately, if the medical debt from your battle with COVID-19 goes unpaid, you'll have another battle on your hands: bad credit.

Any unpaid debt can hurt your score

Your payment history is the core of your credit score. In fact, it counts for a full 35% of your FICO® Score. So, even if every other element of your history is pristine, a delinquent payment or defaulted account on your credit report can do serious damage to your credit score. And if the rest of your credit isn't pristine, your score can easily sink into subprime territory.

This may be changing -- slowly. Some of the recent scoring models, like the FICO® 9, have changed how they weigh medical debt. But adoption of new scoring models moves at a glacial pace, and most creditors still use older models (or their own internal algorithms).

On the plus side, since hospitals and doctors' offices don't generally report to credit bureaus directly, your medical debt won't hurt your credit right away. However, once the hospital has given up and your medical debt gets sold to a collection agency, the clock starts ticking.

You have a 180-day window before it's reported

There can be a lot of variation between when you're billed and when your healthcare provider sends your debt to a collection agency. You could have as little as 60 days to deal with your bill before it's sent to collections, or you could have as long as 180 days.

Either way, you're not immediately in danger if your medical debt winds up in collections. Legislation passed in 2017 gives you some breathing room, as credit bureaus are now required to wait 180 days before adding delinquent medical debt to your credit reports. If you can pay off your debt in that time -- or get your insurance company to do its part -- the medical debt shouldn't make its way onto your credit report at all.

If you're still fighting with your insurance company when the debt reaches your credit report, you're still okay -- if your fight is successful. Credit bureaus are required to remove delinquent medical debt that's paid off by the insurer. If they fail to do so, you can file a dispute with the bureau to have the account removed.

You may have options for managing your COVID-19 debt

Of course, the best thing to do -- if you're able -- is tackle your COVID-19-related debt before it ever reaches collections. Negotiate with your doctor or hospital while they still hold your debt. Depending on your situation, you may be able to get some of your bill waived by the hospital, or work out a payment plan with your healthcare provider.

In an ideal world, your insurer would cover whatever you couldn't negotiate away. In the real world, this often means a lot of negotiations with your insurer over what's covered and what isn't. This is best started as soon as you're billed, but, as mentioned above, it can be resolved even after the debt has reached collections.

For what isn't covered, you may need to turn to financing. Smaller bills can be paid over time with medical credit cards, which often provide 0% interest deals. Just watch out for deferred interest. Larger debts may require medical loans. Depending on your credit, you could find a medical loan with a manageable interest rate and pay off your medical debt over several years.