The Impact of Medical Debt on Your Credit Score

Medical debt is a uniquely American problem, touching the lives of millions regardless of age, income, or health status. In a country where a single hospital visit can cost thousands, it’s no wonder that medical bills are one of the most common forms of debt. For years, unpaid medical bills strained household budgets and dragged down credit scores, making it harder for people to buy homes, secure loans, or even land a job. In 2025, however, the rules have changed historically. 

This guide explores how this debt has impacted credit scores, what’s changed under new federal rules, and what you can do to protect your financial future.

What Is Medical Debt?

This type of debt arises when a patient cannot afford healthcare services out of pocket. These can include hospital stays, surgeries, emergency room visits, doctor’s appointments, prescription medications, lab work, and more. Unlike credit card or personal loan debt, medical debt is rarely planned. It often results from unexpected illness or injury, high deductibles, or gaps in insurance coverage.

It is different from other types of debt in several ways:

1. It’s often unplanned and involuntary: Most people don’t choose to go into medical debt—they get sick or injured and have no other option.
2. Billing is complex and error-prone: Medical bills are notorious for errors, confusion over insurance coverage, and disputes between patients, providers, and insurers.
3. Collection practices can be aggressive: Unpaid bills are often sent to collections quickly, sometimes before the patient knows what they owe.

Read related blog: Medical Debt: Right Methods to Repay it

How Medical Debt Used to Affect Credit Scores

For decades, this type of debt could have a devastating impact on your score. Here’s how the process typically worked:

1. Unpaid Medical Bills: If you couldn’t pay a medical bill, it would sit with the provider for several months.
2. Sent to Collections: After 90–180 days, unpaid bills were often sent to a collection agency.
3. Reported to Credit Bureaus: Once in collections, the debt would be reported to the three major credit bureaus (Equifax, Experian, TransUnion).
4. Credit Score Drops: Medical collections could lower your score by 50–100 points or more, especially if you had good credit.
5. Long-Term Impact: Collection accounts could stay on your credit report for up to seven years, even if you eventually paid them off.

This system meant that a single medical emergency could haunt your financial life for years, affecting your ability to get loans, rent an apartment, or even secure specific jobs.

Recent Changes in Medical Debt Reporting

Recognizing the unique nature of this debt, regulators and credit bureaus have made sweeping changes in recent years:

1. In 2023: The three major credit bureaus stopped reporting medical debt under $500 and removed all paid medical collections from credit reports. They also instituted a one-year waiting period before unpaid medical debt could appear on credit reports.
2. In 2025: The Consumer Financial Protection Bureau (CFPB) finalized a rule banning the inclusion of all medical debt on credit reports used by lenders and prohibiting lenders from considering medical information in lending decisions. This means:
   • Regardless of the amount or payment status, all medical debt will be removed from consumer credit reports.
   • Lenders are no longer allowed to use medical debt in their credit decisions.
   • The rule is expected to erase $49 billion in medical bills from credit reports and boost credit scores for about 15 million Americans by an average of 20 points.

Note: As of June 2025, the rule’s implementation is delayed due to a legal challenge, but it is expected to take effect soon.

Read related blog: Can You Have a Credit Score Without a Credit Card?

How Medical Debt Now Impacts Your Credit Score

With these reforms, the landscape for medical debt and credit scores has fundamentally changed:

1. Medical Debt No Longer Reported: Once the CFPB rule is in effect, no medical debt—paid or unpaid—will appear on your credit report or be factored into your score.
2. Credit Scoring Models Updated: Newer versions of FICO and VantageScore have already started minimizing the impact of this type of debt, recognizing that it is a poor predictor of creditworthiness.
3. No More Artificial Score Drops: Medical emergencies will no longer cause your credit score to plummet, making it easier to qualify for loans, mortgages, and credit cards.

Why the Change?

Research shows that medical debt is not a reliable indicator of whether someone will repay other debts. Many medical bills result from billing errors or insurance disputes, and consumers often have little control over when or why they incur this debt.

The Emotional and Financial Toll of Medical Debt

While the credit reporting rules have changed, the emotional and financial hardship caused by medical debt remains a serious issue.

1. Stress and Anxiety: This debt is a leading cause of financial stress in the U.S., often leading to anxiety, depression, and even avoidance of necessary medical care.
2. Disrupted Life Plans: People with this type of debt may delay buying a home, starting a family, or pursuing education due to financial uncertainty.
3. Aggressive Collections: Even if it no longer affects your credit score, unpaid bills can still lead to lawsuits, wage garnishment, or bank account seizures.

The bottom line: It can upend your life, even if it no longer drags down your score.

Read related blog: How Beem Pass Helps Friends Handle Surprise Medical Bills

What Happens If You Pay Off Medical Debt?

Under Old Rules

Paying off a medical collection doesn’t always immediately improve your credit score. Older scoring models treated paid and unpaid collections similarly, so the negative mark could linger for years.

Under New Rules

Paid medical collections are no longer reported to the credit bureaus. Once the CFPB rule is fully implemented, even unpaid debt will be scrubbed from your report. This means:

• Your credit score will not be penalized for medical bills, paid or unpaid.
• Lenders will not see this debt when reviewing your credit application.
• You may see a boost in your score as negative marks are removed.

However, you still owe the underlying debt, and providers may pursue other collection methods.

Strategies to Avoid Credit Damage from Medical Debt

Even with new protections, it’s important to handle medical bills proactively. Here’s how to avoid trouble:

1. Review Every Bill: Medical bills are often riddled with errors. Always check for mistakes, duplicate charges, or services you didn’t receive.
2. Dispute and Negotiate: If you find errors, dispute them with the provider or insurance company. Don’t hesitate to negotiate your bill—many hospitals offer discounts or payment plans.
3. Act quickly: Try to resolve bills before they go to collections. Once a bill is sent to collections, it’s harder to negotiate and may lead to legal action.
4. Seek Financial Assistance: Ask about charity care, financial aid, or sliding-scale payment programs. Many providers have options for patients in need.
5. Communicate with Providers: If you can’t pay in full, set up a payment plan. Most providers would rather work with you than send your account to collections.

These steps can help you avoid the stress and hassle of dealing with collectors—even if your credit score is protected.

Read related blog: What Is a Credit Score Simulator and Is It Accurate?

What to Do If Medical Debt Is Hurting Your Credit

If you’re still seeing this debt on your credit report—or if you live in a state where the new rules haven’t taken effect—take these steps:

1. Check Your Credit Report: Get a free copy of your credit report from all three bureaus. Look for any medical debt entries.
2. Dispute Inaccuracies: If you find errors or outdated medical debt, dispute them with the credit bureau. Under federal law, bureaus must investigate and remove unverifiable information.
3. Use Credit Monitoring Tools: Services like Beem can help you track your credit, spot unauthorized activity, and alert you to changes in your report.
4. Consult a Credit Counselor: If you’re overwhelmed, a nonprofit credit counseling agency can help you create a plan, negotiate with collectors, and improve your financial health.

Remember, the underlying obligation remains even if this debt is removed from your credit report. Ignoring bills can still lead to lawsuits or wage garnishment.

Read related blog: How to Budget for Big Purchases Without Going Into Debt: A Step-by-Step Guide

FAQs on The Impact of Medical Debt on Your Credit Score

Conclusion

The landscape of medical debt and credit scores in America has changed dramatically in 2025. Thanks to new federal rules, medical bills—whether paid or unpaid—will no longer haunt your credit report or drag down your score. This is a massive win for consumers, especially those who’ve struggled with unexpected health crises and the financial fallout that often follows.

However, while your credit score may be safer, this debt can still disrupt your life. Stay proactive: review every bill, dispute errors, negotiate payment plans, and seek financial assistance when needed. Use tools like Beem to monitor your credit health and spot any issues early. Download the app now!