Keeping Score

I have medical bills in collection. Can I get a secured credit card?


If a medical collection is weighing down your credit, you could be denied a secured card. But you might want to consider other ways to rebuild your credit, while also developing a plan to pay off your medical bills.

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Dear Keeping Score,

I want to open a secured credit card but I have previous medical bills in collection for about a year now (from when I was pregnant with my daughter). Will they affect a bank’s decision to approve my request for a secured credit card? -Gabriela

Dear Gabriela,

The answer to your question is yes, chances are it will. But you can overcome this potential difficulty with some pre-planning or using an alternative way to rebuild your credit report and your credit score.

But let’s start at the beginning. Presumably, you have charged off medical bills that are at least 18 months old. Medical collections generally don’t show on your credit report until they are 180 days past due. This delay gives you six months to deal with any insurance or billing questions or to make a payment plan before the past due balance is reported.

Even then, if the medical collections become part of your credit report, the newest credit scoring formulas from FICO and VantageScore do not weigh medical collections as heavily as other types of collection accounts and may not count them at all after the collection is paid.

However, unpaid bills affect the payment history section of the traditional FICO formula, and it accounts for 35 percent of its calculation.

What you want to avoid is being turned down for a secured card and being dinged for a hard inquiry with nothing to show for it except for another mark against you on your credit report and score. While a secured card is a great way to either rebuild or start building one’s credit, here are some suggestions that may help:

  • Visit the local bank branch or credit union where you currently have your checking or savings account. If you don’t have one and are among the millions of unbanked individuals, start with a credit union and ask what their policy is on secured cards. Bring a copy of your credit report with you for discussion purposes so they won’t have to pull one. (You can get a free copy at
  • If you need better credit than you have to open a secured card, ask about a credit builder or passbook loan. Many credit unions and banks offer small loans to help people build or rebuild their credit. Much like a secured card, you’ll need to make a deposit when you apply for one. The loan will be reported to the bureaus and your credit score will benefit as a result.
  • Become an authorized user. If a friend, partner or relative with good credit adds you to their account as authorized user (I suggest they not give you a card to avoid misunderstandings), your credit standing will improve as the account history gets reported on your credit file, too.

If you are just trying to avoid carrying cash around with you, you could obtain a prepaid reloadable card. Although these cards are not credit cards, they are widely accepted. The good news for you here is that no credit check is required. The flip side, though, is these types of cards will not help you build credit they are not reported to the credit bureaus. In addition, you have to be careful to do your research because the fees associated with prepaid cards can vary widely.

See related: Fewer consumers have debt accounts in collection, New York Fed report finds

Unpaid medical bills don’t just go away

Now let’s talk about those medical bills. This is something that will not just go away on its own. The Consumer Financial Protection Bureau said in a December 2014 report that of the 220 million consumers with a credit report, nearly one in three has a collection item, and about half of those are for medical collections. The same report also points out that most medical debt in collections are for relatively small amounts, averaging $579.

But your question says you have “bills” in the plural, so if each of those is the “average” amount, we could be talking about a significant amount of money. What you need to remember is because you are only about a year and a half in, you probably have five and a half years or so to wait for those accounts to disappear from your credit report.  And just because a debt falls off your credit report doesn’t mean you don’t still owe it or that it somehow miraculously goes away. So you need a plan.

The first thing you need to do is examine your bills. Medical bills sometimes remain unpaid because a consumer thought their insurance was going to cover everything. If this is the case for you, look at the insurance explanation of benefits (called an EOB) for each bill and see what was and was not covered. If you believe something should have been covered by insurance, give the insurance company and/or the hospital a call and ask. It won’t hurt and it just might help.

Because the debt is already in collection, you may be able to work out a settlement where you pay less than the full balance you owe. I suggest you start with the hospital or doctor’s office even though the debt is in collections. They might take it back. If not, try working with the collection agency to negotiate terms you can afford or a lump sum settlement for less than full balance. Just be sure that you know what you can afford to pay. Once you reach an agreement – in writing! – you will be expected to hold up your end of the bargain. This is why it is crucial for you to know how much your budget will allow.

Before you make that call, take a long, hard look at your monthly income and expenses and see if there is a way to increase one (income) and decrease the other (expenses). Earmark at least a portion of the money you can save via these means for your medical debt. This is the amount you can offer the collector.

If you go the settlement route and more than $600 is forgiven, you will need to set some money aside during the year to cover the income tax liability. Forgiven debt is considered income by the IRS and taxes will be due. If you are not successful in negotiating with the collector, you should know that bankruptcy exists in this country for a reason. But this is an extreme remedy and one that I recommend only be taken when all other options have been thoroughly exhausted. And keep in mind that bankruptcy and debt settlements are both credit score killers.

Remember to keep track of your score!

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