Do Medical Bills Affect Your Credit When Buying a House?

Securing a mortgage can be complex, and many wonder how financial obligations, including medical bills, influence eligibility. This article clarifies the relationship between medical debt, credit scores, and the mortgage application process, explaining how medical bills affect credit health and home buying.

Medical Bills and Your Credit Report

Medical bills typically do not appear on personal credit reports unless sent to collections. Healthcare providers generally do not report account information directly to the major credit bureaus. This means a routine medical bill will not affect your credit score as long as it is managed directly with the provider and does not become severely delinquent.

Significant changes have been implemented regarding how medical collection accounts impact credit reports. Unpaid medical bills now have a one-year waiting period after being sent to collections before appearing on your credit history. This grace period provides individuals more time to resolve the debt with their healthcare provider or insurance company.

Paid medical collection accounts are now removed from credit reports by the three nationwide credit reporting agencies. Unpaid medical collection accounts with an initial reported balance under $500 are generally not included on credit reports at all. These changes aim to reduce the negative impact of medical debt on consumer credit profiles.

Lender Considerations for Mortgage Applications

Mortgage lenders assess an applicant’s overall financial health. While routine medical bills, or those handled appropriately, do not pose a barrier, larger unpaid medical collections on a credit report can influence mortgage eligibility. Lenders primarily evaluate creditworthiness based on payment history across all debts and financial stability.

A significant factor for lenders is the Debt-to-Income (DTI) ratio, which compares your total monthly debt payments to your gross monthly income. Any outstanding debt, including reported medical debt in collections, contributes to this ratio. Lenders typically prefer a DTI ratio of 36% or lower, though some may accept up to 43% depending on the loan type and other qualifying factors.

Medical treatment or bills, if managed without defaulting into reported collections, generally do not impede a mortgage application. Lenders focus on an applicant’s overall ability to manage financial obligations and repay a new mortgage.

Managing Medical Debt for Credit Health

Proactively managing medical bills can help ensure they do not negatively impact your credit standing when seeking a mortgage. Regularly checking your credit reports from all three major bureaus is an important step. You can obtain free copies of your credit reports annually through AnnualCreditReport.com to review for accuracy.

If you identify any inaccuracies or medical collections that should not be present, such as paid collections or those under the $500 threshold, you have the right to dispute this information with the credit reporting company. Disputing errors promptly can lead to their removal, potentially improving your credit profile.

Engaging in proactive communication with healthcare providers or collection agencies is also beneficial. You can request itemized bills to verify charges, inquire about financial assistance programs, or negotiate a payment plan or discounted settlement. Understanding the one-year grace period before medical collections appear on your credit report allows time to resolve issues before they become reportable.