How credit scores are affected after a personal injury: What you need to know
Suffering from a personal injury is a life-altering experience. The physical pain, emotional trauma, and financial burdens often extend far beyond the initial incident. One of the most significant yet overlooked aspects of personal injury is how it can affect your credit score. This financial impact can last for years, influencing your ability to secure loans, mortgages, or even future employment.
Immediate financial impact of a personal injury
When someone sustains a personal injury, they often face immediate medical expenses that can range from emergency room visits and surgeries to rehabilitation and ongoing treatments. Many individuals are unprepared for the sudden financial strain these costs impose, leading them to rely on credit cards or loans to cover expenses.
If you have health insurance, it may cover a portion of the medical bills, but even with coverage, there are often out-of-pocket expenses such as co-pays, deductibles, and treatments that aren’t fully covered. For those without adequate health insurance, the burden can be even heavier, as they are left responsible for the full cost of medical care.
How medical bills and debt can harm your credit
The impact of medical bills on credit scores is one of the most direct ways personal injury can affect financial health. Here are some of the most common ways this happens:
- Unpaid medical bills
Medical bills can be substantial, and it’s not uncommon for people to struggle with paying them on time. If medical bills go unpaid, they may eventually be sent to collections. Once a medical debt is turned over to a collections agency, it can show up on your credit report and significantly lower your credit score. Even if you pay the bill later, the fact that it went to collections in the first place can have long-lasting effects on your credit. - Late payments
If you use credit cards or personal loans to cover medical bills or other expenses during your recovery, missing payments due to financial strain can result in late fees and negatively impact your credit score. Credit card companies typically report late payments to credit bureaus after 30 days, and once this happens, your score can drop considerably. - Maxing out credit cards
In times of financial hardship, many people rely on credit cards to cover everyday expenses while they are out of work. Maxing out your credit cards—or even using a significant portion of your available credit—can harm your credit score by increasing your credit utilization ratio. This ratio measures how much of your available credit you’re using, and the higher it is, the more negatively it affects your score.
Loss of income and its effects on credit
Personal injury can often result in lost income, particularly if you are unable to work while recovering from your injuries. This can create a domino effect of financial difficulties that ultimately impact your credit score:
- Difficulty making payments
Without a steady income, it may become challenging to pay off existing debts, including credit cards, personal loans, and mortgages. If you fall behind on payments, your creditors will report this to credit bureaus, which will lower your credit score. - Increased reliance on credit
If you are unable to work, you may begin relying on credit to cover basic living expenses such as rent, groceries, and utilities. This increased reliance on credit can drive up your credit utilization ratio, which as mentioned earlier, can harm your credit score. Furthermore, if you are unable to keep up with the new debt, the risk of default or late payments grows.
How personal injury settlements can help—but sometimes hurt—your credit
If you’ve filed a personal injury lawsuit with the help from Tiano O’Dell, Charleston personal injury lawyer, a settlement or court award may eventually provide financial relief, but the process can be slow. Depending on the complexity of your case, it could take months or even years before you receive compensation. In the meantime, financial problems may accumulate, affecting your credit score.
In some cases, personal injury victims turn to pre-settlement funding, which allows them to borrow against their expected settlement. While this can provide temporary financial relief, it often comes with high interest rates and fees, potentially making it harder to recover financially in the long run.
What to do if your credit score is impacted by a personal injury
If your credit score has taken a hit after a personal injury, you’re not alone. Many people find themselves in this situation and there are steps you can take to minimize the damage and rebuild your credit.
- Contact your creditors
If you’re unable to make payments due to your injury, contact your creditors as soon as possible. Many lenders offer hardship programs that can provide temporary relief, such as reduced payments or deferred payments. While this may not directly improve your credit score, it can prevent further damage by helping you avoid late payments. - Work with medical providers
If medical bills are becoming overwhelming, reach out to your healthcare providers to discuss payment plans or potential discounts. Many hospitals and medical offices offer financial assistance programs for people who can’t afford to pay their bills in full. - Monitor your credit report
Keep a close eye on your credit report to ensure that all the information listed is accurate. Medical bills can sometimes be reported incorrectly, or you may discover debts that don’t belong to you. If you spot any errors, dispute them with the credit bureaus. - Consider debt cunseling
If you’re facing significant financial hardship, a credit counseling agency may be able to help. These agencies can work with you to create a budget and negotiate with creditors to reduce interest rates or monthly payments. - Rebuild your credit over time
Recovering from the financial impact of a personal injury may take time, but by focusing on paying down debts, making timely payments, and reducing your reliance on credit, you can slowly rebuild your credit score.
Conclusion
Personal injuries can have lasting effects on your physical health, emotional well-being, and financial stability. Among the most significant financial impacts is the toll a personal injury can take on your credit score. By understanding the risks and taking proactive steps, you can protect your credit and recover from financial setbacks more quickly. Don’t hesitate to seek help, whether it’s from creditors, healthcare providers, or financial professionals—your credit and long-term financial health depend on it.
