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Medical bills leave debtors with poor credit

Debtors beware. In Michigan and across the country, medical debts have become an increasing source of woe for Americans.

Medical bills make up the majority of collection actions on credit reports. Though most actions are for less than $250, they can remain on record for up to seven years - even after a bill has been paid-off.

For debtors, that translates to a lowered credit score and increased home financing costs. It can also be a barrier to a successful home loan refinance. According to a vice president at Mortgage Lenders of America, someone with a FICO score of 680 could see up to a 65-point drop following medical collections, taking that individual's credit from good to poor.

The good news is that Congress is considering enacting the Medical Debt Responsibility Act. The legislation would mandate that credit agencies remove paid medical bills from credit reports within 45 days -- a far cry from the current seven-year cap.

According to research conducted by The Commonwealth Fund, 30 million Americans were contacted by collection agencies for unpaid medical bills in 2010. That number rose from 22 million in 2005.

The problem is growing, and perhaps in part due to hospitals' early reliance on collection agencies. Rather than hiring more staff, many health care facilities instead send delinquent bills to collections after around 60 to 90 days.

But this approach can cause many debtors unnecessary headaches, particularly those who were never liable for medical expenses in the first place. Billing errors, confusion over whether a claim will be covered by insurance, and disputes between insurance companies and doctors can all lead to debts being sent to collection agencies.

Source: NPR, "Medical Bills Can Wreck Credit, Even When Paid Off," March 4, 2012

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