Patient's age determines whether unpaid medical debt owed
Dear Credit Score Report,
When our daughter was a student, living at home, she had
dental work done and saw her dermatologist. It was my husband's intent to pay
our daughter's medical expenses, but he lost his income and our home went into
foreclosure. We also had a bankruptcy, and he did not include our daughter's
medical bills because they were attached to her Social Security number. Long
story short, he never finished paying her debts, these debts went to collection
and are now dragging my daughter's credit score down. Is there anything she can
do to fix this wrongdoing? Sincerely, Guilty Parent
Hey Guilty Parent,
I'll be giving you two answers this week, since the
appropriate response depends on your daughter's age at the time those medical
services were provided.
In your situation, the correct response depends on whether
your daughter was a minor or an adult when she visited her doctors. Either
way, the objective is the same: getting those collection accounts off her
credit report. According to FICO,
creator of the popular credit score that bears its name, collection accounts will
damage your daughter's credit score. The extent of that damage, however, depends
on your daughter's prior credit history. "If she had a relatively high
FICO credit score -- somewhere in the upper 700s -- prior to the appearance of
this medical debt on her credit report, she could expect to see a score drop of
100 points or more with the addition of this collection debt," says Barry
Paperno, consumer operations manager for myFICO.com. "Had her credit
report already included other accounts with late payments and/or high credit
card balances, she might experience a score drop of 50 points or so," he
says via e-mail.
To prevent or minimize that damage, you'll need to first
determine how old your daughter was at the time she received medical service.
Adult: If she was
age 18 years of age or older when she visited her doctors, your daughter may be
responsible for that debt. In that case, she can choose to work with the collection agencies and repay the debt. "If she intends to pay off the
bill, the best advice would be to negotiate a repayment plan with the
collection agency and make it a condition of the agreement that the account
will be removed from her credit report once it is fully paid," says Mark
Rukavina, executive director of the Access Project, a nonprofit that works with
communities to improve access to health care. "She should agree only to terms she will
be able to pay and should also be encouraged to get this agreement in
writing," Rukavina says.
According to collection agency trade association ACA International, some debt collectors may agree to remove these items once they are paid, although their preferred approach is to mark such accounts as paid and leave them on a borrower's credit reports for seven years. As for the impact on the borrower, credit bureau Experian says having an account marked "settled" is slightly better than not paying the debt at all, but it is still considered a negative item.
Your daughter may also want to add a written statement to
her credit report. In this statement, she'll describe the situation (as you did
in your e-mail) for any potential lenders or employers that review her credit
history. "She has this right under the Fair Credit Reporting Act,"
Rukavina says. "In 100 words or less, she can explain why this account
appears on her report, and once it is on file, the credit bureaus are required
to provide the statement to any entity obtaining a copy of her credit
report."
Should your daughter find herself unable to repay the debt, she
will need to wait for her score to recover. "It's also important to keep
in mind that negative items, such as late payments and collections, have their
greatest impact on the score when they are first reported. Their impact
diminishes over time," FICO's Paperno says. Negative items, such as those unpaid medical
debts, will remain on her credit reports for seven years.
Minor: If she was a minor at the date of medical
service, your daughter may not be liable for those
unpaid debts. "The issue is a legal one for the lender, or in this case,
the medical debt holder," says Rod Griffin, director of public education
with credit bureau Experian. Contracts with minors typically are not legally valid,
meaning that any debt accrued in the minor's name -- credit card debt, medical
debt or otherwise -- is not the minor's responsibility.
If it's deemed that your daughter is not liable for
repayment, "she should write a letter to the collection agency asking them
to cease collection action," Rukavina says, adding that a copy of the
letter can also be mailed to your state's attorney general. As part of the dispute
process used to challenge credit report inaccuracies, also send your letter to
the credit bureaus -- Equifax, Experian and TransUnion -- that maintain
consumer credit reports.
With those letters, include copies of supporting
documentation showing both your daughter's date of birth and when she received
medical attention. Those documents should list the date of service and might include
a doctor's bill or explanation of benefits from your health care provider.
Then you wait. Once the collection agency stops pursuing the
debt and contacts the credit bureaus, the negative items should be removed from
your daughter's credit reports. "If she disputes the information and the
lender says to remove it, we will," says Experian's Griffin. What if the
collection accounts remain? Then your daughter should file a dispute with those
credit bureaus and collection agencies that continue to report her debts as
unpaid.
Good luck!
--Jeremy
See related: 11 tips for dealing with debt collection, collectors, How to add a written statement to your credit report, How to dispute credit report errors, Decade-old credit mistakes shouldn't appear on your report, Special report: Do credit cards offer health care Rx?, Medical credit cards: Watch for these warning signs
Jeremy M. Simon is a former CreditCards.com reporter who wrote about credit scoring, economic data, credit card crime and other issues. He is based in Austin, Texas. He is a graduate of Vassar College and has previously worked for Thomson Financial in New York City, where he wrote about the stock markets, and Texas Monthly, as well as several publications in Austin.
Send your question to The Credit Score Report.
Published: November 2, 2010
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