What you need to know about medical debt and credit scores

Dear Liz: I disputed medical expenses of approximately $350. A few months later, I received a collection notice. I then called the medical provider, who said they would suspend collections while the dispute was pending. There was no further communication for over a year, then out of the blue I received a disparaging remark from the collection agency. I monitor my credit scores through my credit card accounts. Two cards are driven by data from TransUnion. One reported a drop from 802 to 706 while the other reported a drop from 809 to 774. My other chart provides a score driven by Equifax and this remained unchanged at 822. I’m curious about the discrepancies in those scores, and also how long it will take for my credit rating to recover if I don’t try to resolve the disparaging remark or disputed medical bill.

Answer: Credit score formulas vary widely in how they deal with medical debt. Some older scoring models treat unpaid medical bills the same as any other collection account. The new formulas may deal with medical debt less harshly, reflecting research that shows these bills aren’t as reliable an indicator of creditworthiness as other collection accounts. Some of the newer formulas ignore paid medical debt entirely.

Earlier this year, the Consumer Financial Protection Bureau debated whether medical debt should be included in credit reports. Less than three weeks later, the three credit bureaus announced that nearly 70% of medical debt would be removed from credit reports by the middle of next year.

Paid medical collections have already been wiped from people’s credit reports, and unpaid bills will not be reported to the bureaus for 12 months (an increase from the current six months). By June 30, 2023, offices will also stop reporting any medical debt under $500.

You can wait for that to happen next year, or you can pay the bill and have it removed from your credit reports sooner.

Dear Liz: What are the implications for social security if you plan to work after 70? If you start at age 70, are your benefits reduced because you are working? Do you benefit from delaying the past 70 years?

Answer: Your benefits cap at age 70, and your income won’t reduce your checks, so there’s no reason to delay your claim beyond that point.

You cease to be subject to income testing once you reach full retirement age, which is currently between 66 and 67. If you apply before then, the earnings test reduces your benefits by $1 for every $2 you earn over a certain amount ($19,560). in 2022). That money isn’t gone for good – withheld benefits are gradually added to future checks once you pass full retirement age.

The big incentive for delaying your claim beyond full retirement age is the Deferred Retirement Credit which increases your benefit by 8% each year you defer your claim until age 70. And as mentioned in previous columns, benefits also incur increases in the cost of living whether you started them or not. Those who choose to delay the start of their benefits will not miss the 8.7% increase for 2023.

Dear Liz: I looked up the name of my financial advisor in the link you provided to verify someone was a Certified Financial Planner (cfp.net/verify-a-cfp-professional), and he wasn’t there. I went back to his bio and he says he pays and is an AIF (Accredited Investment Fiduciary). Is it the same? Or roughly the same?

Answer: An AIF designation indicates that the advisor has been trained to act as a fiduciary, that is, someone who is committed to putting the best interests of their clients first. Most advisers are held to a lower “suitability” standard that allows them to recommend investments that are more expensive or perform worse than available alternatives, simply because the recommended investments pay the adviser more.

However, an AIF is not equivalent to a Certified Financial Planner credential. All CFPs are held to a fiduciary standard, but they have also been trained to offer comprehensive financial planning. Coursework, testing, and experience requirements are much more rigorous for a CFP.

A similar title to the CFP is the Personal Finance Specialist, which is a designation earned by Certified Public Accountants. A CPA-PFS has extensive training in comprehensive financial planning, in addition to tax expertise.

Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions can be sent to him at 3940 Laurel Canyon, #238, Studio City, CA 91604, or by using the “Contact” form on asklizweston.com.

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