Medical debt can be an overwhelming burden, particularly in Canada, where healthcare is largely public but not always entirely free. Whether due to uncovered medical expenses, procedures that fall outside of provincial healthcare, or treatment at private facilities, unpaid medical bills can add up quickly. One common question people have is: does medical debt affect your credit? The answer is not straightforward and depends on various factors. In this article, we’ll explain how medical debt can affect your credit in Canada, and how to minimize credit damage from medical bills.
How credit reporting works
Credit reporting in Canada is governed by two primary agencies: Equifax and TransUnion. These bureaus track your credit history, including loans, credit cards, and other financial obligations, and provide creditors with your credit score – a number that reflects your financial trustworthiness. When a creditor reports that you’ve missed a payment or defaulted on a debt, this negatively impacts your score. A lower credit score can make it harder to secure loans, rent property, or even get hired for certain jobs. So, where does medical debt fit into this system?
How medical debt can impact your credit
In Canada, medical debt doesn’t automatically appear on your credit report in the same way credit card debt or a car loan might. Instead, the impact occurs if your unpaid medical bills are sent to collections. Here’s how it typically works:
- Non-payment of medical bills: if you have outstanding medical expenses that you don’t pay, the healthcare provider or private clinic may attempt to collect the payment directly from you for a period of time.
- Sent to collections: if the bills remain unpaid, the provider might eventually turn your debt over to a collection agency. Once your debt is with collections, it can be reported to the credit bureaus.
- Credit report hit: once reported, your credit score can drop significantly, making it harder to access credit or loans in the future.
How serious is the impact of medical debt?
If your medical debt reaches the collections stage, it can have a serious impact on your credit score. The exact amount your score will drop depends on various factors such as the size of the debt, how long it’s been overdue, and your existing credit history. While medical debt might not seem as critical as other forms of debt, lenders and creditors view all unpaid debts the same. A collections item on your credit report, regardless of the nature of the debt, signals a risk to future lenders.
How can you prevent medical debt from affecting your credit?
If you have medical bills that you cannot immediately pay, there are several steps you can take to mitigate the potential damage to your credit:
- Negotiate with healthcare providers: many hospitals and clinics in Canada will offer payment plans or even reduced fees if you explain your financial situation. Some may even provide charity care if you’re experiencing financial hardship.
- Stay in contact: if you can’t pay the full amount, make sure you communicate with the provider. Let them know your situation and work out a plan. Ignoring the problem only increases the likelihood that the debt will go to collections.
- Seek professional advice: if you’re already facing medical debt that’s threatening your credit, consider speaking with a reputable Licensed Insolvency Trustee (LIT). A LIT can help you assess your financial situation and offer debt relief options, including consumer proposals or bankruptcy, which could protect you from further damage to your credit score.
Is medical debt different from other debts in credit reports?
Some people may wonder if medical debt is treated differently from other types of debt once it’s on your credit report. In Canada, medical debt does not receive special treatment. Once it’s sent to collections, it’s treated like any other delinquent account, regardless of its source. However, it’s worth noting that medical debt generally takes longer to be sent to collections compared to consumer debt like credit cards or utility bills, giving you more time to address it.
Does medical debt affect your credit? FAQs
Here are some of the most common questions we receive about the impact of medical debt on your credit:
Is there medical debt in Canada?
In Canada, while healthcare is publicly funded through provincial and territorial systems, not all medical expenses are covered. Costs such as dental care, prescription medications, vision care, and private healthcare services can lead to out-of-pocket expenses. If these bills remain unpaid, they can turn into medical debt. Though medical debt is less common than in countries with privatized healthcare systems, it does exist, particularly for services not covered by public health plans or private insurance.
Who is most affected by medical debt?
Those most affected by medical debt in Canada are typically individuals who require services not fully covered by provincial healthcare, such as dental care, prescription medications, physiotherapy, and mental health services. People without private insurance, low-income individuals, seniors, and those with chronic health conditions often face the highest risk. Additionally, individuals in rural or remote areas may encounter higher costs for specialized medical services, further increasing their likelihood of accruing medical debt.
Does collection affect your credit?
Yes, being sent to collections can significantly affect your credit. When an unpaid debt, including medical debt, is turned over to a collection agency, it is typically reported to credit bureaus. This can cause your credit score to drop and may remain on your credit report for several years. A lower credit score can make it more difficult to obtain loans, credit cards, or even secure housing. The longer the debt remains unpaid in collections, the more damaging it can be to your financial standing.
While medical debt itself doesn’t directly affect your credit in Canada, it can still harm your credit score if it is sent to collections. To avoid this outcome, it’s crucial to address any medical bills early, negotiate with healthcare providers, and speak to a Licensed Insolvency Trustee if you’re unable to pay the full amount. Taking these proactive steps can help protect your credit and your financial future. Reach out today for a FREE consultation to explore your options for debt relief.