What you need to know about medical debt and your credit scores
Dear Liz: I disputed a medical charge for around $350. A few months later I received a collections notice. I then called the medical provider, who said they would suspend the collections while the dispute was being reviewed. There was no further communication for over a year, then out of the blue I received a derogatory remark from the collections agency. I monitor my credit scores via my credit card accounts. Two cards are driven by TransUnion data. One reported a drop from 802 to 706 while the other reported a drop from 809 to 774. My other card provides a score driven by Equifax and that one remained unchanged at 822. I’m curious about the discrepancies in these scores, and also about the length of time it will take for my credit score to recover if I do not try to resolve the derogatory remark or disputed medical bill.
Answer: Credit scoring formulas vary considerably in how they treat medical debt. Some older scoring models treat unpaid medical bills the same as any other collection account. Newer formulas may treat 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 latest formulas ignore paid medical debt entirely.
Earlier this year, the Consumer Financial Protection Bureau questioned whether medical debt should be included on credit reports at all. Less than three weeks later, the three credit bureaus announced that nearly 70% of medical debts would be removed from credit reports by the middle of next year.
Paid medical collections have already been eliminated from people’s credit reports, and unpaid bills won’t be reported to the bureaus for 12 months (an increase from the current six months). By June 30, 2023, the bureaus also will 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 more promptly.
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Dear Liz: What are the implications for Social Security if you plan to work past age 70? If you start at 70, are your benefits reduced because you’re working? Do you get any benefit from delaying past 70?
Answer: Your benefit maxes out at age 70, and your earnings won’t reduce your checks, so there’s no reason to delay your application past that point.
You stop being subjected to the earnings test once you reach your full retirement age, which is currently between 66 and 67. If you apply before that point, 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 — the withheld benefits are gradually added back in to future checks once you’re past full retirement age.
The big incentive to delay your application past full retirement age is the delayed retirement credits that boost your benefit by 8% each year you postpone your application until age 70. And as mentioned in previous columns, benefits also earn cost-of-living increases whether you’ve started them or not. People who are opting to delay the start of their benefits won’t miss out on the 8.7% increase for 2023.
Republicans keep coming up with ways to destroy Social Security. Don’t let it happen.
Dear Liz: I looked up my financial advisor’s name in the link you provided to verify someone as a Certified Financial Planner (cfp.net/verify-a-cfp-professional), and he wasn’t there. I went back to his bio and it says he is fee only and he is an AIF (Accredited Investment Fiduciary). Is that the same? Or approximately the same?
Answer: An AIF designation indicates that the advisor has been trained to act as a fiduciary, which is someone committed to putting their clients’ best interests first. Most advisors 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 advisor more.
However, an AIF is not equivalent to a Certified Financial Planner credential. All CFPs are held to a fiduciary standard, but they’ve also been trained to offer comprehensive financial planning. The coursework, testing and experience requirements are much more rigorous for a CFP.
A credential that is similar to the CFP is the Personal Financial Specialist, which is a designation earned by certified public accountants. A CPA-PFS has extensive training in comprehensive financial planning, in addition to their tax expertise.
Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.
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