How to minimize credit damage from medical bills

If you’re facing big bills from medical issues and you’re worried about your credit, keep this in mind: Your credit score can recover if it is badly damaged, but there are no such guarantees about your health.

"To some extent you’ll have to balance your health versus your credit quality," says credit expert John Ulzheimer. "Clearly those two things aren’t an equal consideration."

No quick turn for worse

Most health care providers don’t report to the credit bureaus, so carrying a big balance or paying late won’t affect your credit score that way. But providers may send unpaid bills to collections, although they seldom do that until you are at least 60 days late — and often even later.

Debt collectors can and do report accounts to the credit bureaus. But medical debt is not supposed to appear on your credit reports until it’s at least 180 days overdue. Ulzheimer points out that debt collectors still may attempt to collect the debt in the meantime.

It’s smart to monitor your credit reports to be sure bills don’t appear when they shouldn’t. Credit reports are available weekly from all three credit bureaus at AnnualCreditReport.com.

There are mor things you can do to maintain good credit or minimize the damage if an unexpected expense clobbers your budget:

Fact-check the bills

Errors in medical billing are not uncommon and could cost you money or delay your claim. Don’t throw away statements labeled "This is not a bill." They often list procedures and medications your insurance is being billed for. Check them carefully to make sure they’re accurate and match your explanation-of-benefits statements. .

If you’re in the hospital, try to keep a record of tests and medications. Compare that to the bill when it arrives, says Adria Gross, a medical bill advocate who helps consumers spot errors and negotiate bills.

You also may be able to negotiate a discount or a payment plan, Gross says.

How you pay matters

Think twice before using a credit card. While convenient, but you will lose the special credit protections given to medical debt. If you expect insurance to cover some amount or think you can negotiate a lower bill, pursue those avenues first. Once the bill is paid, you lose negotiating power.

On the other hand, if a bill has been sent to collections, paying with a credit card can stop the calls.

A personal loan will typically cost you less in interest than a credit card, which can help cushion your overall finances. A personal loan will have a negligible effect on your credit score, Ulzheimer says.

Bankruptcy as last resort

If the amount is impossible to pay, consider bankruptcy. "Medical debt is statutorily dischargeable, which means you always have bankruptcy as an option, although it probably should be your last option," Ulzheimer says.

Bankruptcy may be preferable to engaging in a protracted battle, raiding retirement savings or risking your home. It damages credit, but scores do rebound and bankruptcy allows you a fresh start.

Addressing credit damage

A credit score drop doesn’t have to be forever, especially if you are able to turn your finances around by, say, returning to work. To position yourself to bounce back, pay bills on time if you can. If it looks as if you cannot, contact creditors right away to see if another arrangement can be made to keep your account from being reported late.

If you used a credit card to cover medical debt, be aware that scores typically go down when credit utilization — the portion of your credit limit that’s in use — goes up. Your score will likely recover as you chip away at the balance.

Bev O’Shea is a writer at NerdWallet. Email: boshea@nerdwallet.com. Twitter: @beverlyoshea.