Do medical bills affect your credit when buying a house?

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Medical costs have long been a burden for Americans, with more than 19% of households reporting that they are unable to pay their medical bills right away. As a result, many adults find themselves stressed and dealing with the after-effects of these debts, which they likely didn’t even choose to incur. 

As of July 1, 2022 medical debt will begin to impact consumers’ credit scores in fewer ways. While unpaid medical bills still have consequences, it's still possible to qualify for a loan and buy a house when you shoulder this type of debt, if all of your other financials are sound.

Can medical bills affect your credit? 

Medical debt has a way of building up quickly, especially when you consider that the average deductible on a single care plan is now $1,669, according to a recent Kaiser Family Foundation study. Break your arm, fall ill, or even wind up in the hospital as a result of COVID complications, and you could suddenly find yourself on the hook for thousands of dollars in deductibles and co-pays. 

Without that kind of money on hand, you may be unable to pay those bills right away. And as with most consumer bills, if you fail to make payments on-time, you could find those bills quickly heading into collections.

What happens when medical bills go to collections

Unpaid medical bills don’t affect your credit right away. In fact, it’s not until these accounts are sent to a collections agency that they will even appear on your credit report. 

Collections are the result of delinquent accounts that go unresolved for a period of time. This usually happens between 90 and 120 days if a mutual payment agreement is not established, though this really varies by provider. 

Once the account goes into collections, you may find it quickly reported to the credit bureaus. The delinquent account will show up as an unpaid debt on your credit report(s) and as such, can have a significant impact on your credit score. 

New credit reporting rules

As of July 1, 2022, the three credit bureaus — Experian, Equifax, and TransUnion — will no longer be including U.S. medical debt in consumers’ credit reports. This has the potential to boost scores and overall creditworthiness for millions of individuals.

The catch? This new policy currently only applies to paid medical debt. (When you pay your bills on time, that's also reported to the credit agency and can positively affect your credit.)

Beginning in 2023, these changes will expand to include all reported medical debt — paid and unpaid — as long as the original balance was $500 or less. When this occurs, individuals with smaller, unpaid medical bills or medical debt that has since been resolved will find that their credit report is no longer affected (and their score will likely improve).

Until then, however, unpaid medical bills still have the potential to be damaging, especially for consumers trying to qualify for loans, including mortgages. 

Will medical bills affect my credit when buying a house?

Whether or not medical bills will stand in your way of buying a house really depends on many factors. 

Barring other variables, you can still obtain a mortgage loan even if you have unpaid medical bills in collections. The underwriting process might be a bit more challenging, however.

At present, your credit report will likely still reflect any medical bills in collections that have not been paid in full. This has the potential not only to drop your credit score, but also prompt a mortgage lender to ask additional questions. 

Depending on your credit history outside of those medical bills — and whether you qualify for a loan with your income, down payment, etc. — a single unpaid doctor’s bill might not affect you at all when buying a house. However, you could hit a speed bump if:

  • You have bad credit, or your credit score is on the cusp of qualifying
  • You’re already struggling to meet the lender’s other requirements 
  • You have a pattern of unpaid bills over a long period of time

Every lender is a bit different, so it’s important to communicate with your loan officer to explain the situation and work through any issues.

Find out the ideal credit score for buying a home.

Tips on buying a house if you have medical bills

Nearly 18% of credit reports had at least one medical bill in collections in 2020, according to the Consumer Financial Protection Bureau (CFPB). If you are one of those individuals with outstanding medical bills and plan to buy a home in the near future, here are a few ways you can plan ahead.

1. Check your credit

The first step to avoiding any unwanted surprises is to know where you stand. Not all unpaid medical bills go to collections, and not all collections make their way to your credit report. By checking your full report, you’ll know exactly what’s being reported and how much you owe. You may even find errors that can be corrected or removed!

2. Pay off balances

As of July 2022, paid medical debts no longer count against your credit score. By simply paying off these account balances (if feasible), you can limit their effect on your homebuying process. 

3. Ensure that you meet other lender requirements

A lender is less likely to blink at medical accounts in collections if you meet all of their other eligibility requirements. If you have a strong payment history, great credit score, a healthy down payment, and enough income, you might find that your delinquent medical bills don’t make much difference.

4. Work with a mortgage broker

If you’re struggling to find the right lender, a mortgage broker may be able to help. These individuals are able to connect buyers with potential lenders based on a range of personal factors.

5. Wait until 2023

Beginning in early 2023, all medical debt with an original owed balance below $500 will be removed from credit reports. If your outstanding bills meet this requirement, it could be worth waiting until the change occurs to begin shopping for a home. (Plus, 2023 will still be a good time to buy a house.)

Getting a home mortgage loan can be a lengthy and arduous process. If you have accounts in collections, it’s one more thing you may need to deal with along the way as you work with a lender. However, by and large, borrowers will find that unpaid medical bills alone won’t preclude them from buying a home.

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