Three Ways An Auto Accident Can Wreck Your Credit Score

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Most people know an auto accident can have a negative impact on their finances, but they may not realize just how bad things can get. If you're not vigilant or take certain steps, a vehicle collision can ruin your good credit and make it difficult to get loans, credit cards, or other financial products in the future. Here are three ways a car accident can hurt your credit and what you can do about it.

Fall Behind on Bills

The easiest way you can end up with bad credit after an auto accident is by failing to pay your bills on time. This can happen for any number of reasons. You could become too injured to work. The money you set aside for bills may be rerouted to pay medical expenses and other necessities. You may fall unconscious for a long period of time and simply be unable to send the checks to your creditors.

No one plans on getting into a car collision, but you can avoid losing your credit rating by taking simple steps to prepare for times when you may experience a financial emergency or become incapacitated. For instance, building an emergency fund equal to a few months' worth of expenses—experts recommend between 3 and 9 months—can provide a much needed buffer while you recover from your injuries.

Another thing you can do is have your paycheck directly deposited into your account and set up automatic bill payment. This ensures your bills get paid even when you forget or can't physically make the payments. Giving financial power of attorney to someone you trust lets that person handle your finances until you're able to do it yourself again.

Poorly Coordinated Benefits

A second way you could end up with bad credit after an auto accident is if your healthcare insurance company fails to pay your medical bills because of administrative failures. Sometimes the failure happens due to negligence or incompetence. The hospital fails to send the bill to your insurance company by the deadline and the insurance provider denies the claim. As a result, the hospital bills you directly and sends the account to collections, resulting in a negative mark on your credit report.

However, administrative failures commonly occur when you have multiple insurance companies working on the same case and no one seems to know who is paying what. For instance, you have healthcare insurance but your auto insurance may also pay for some medical expenses. It may not be clear which policy is supposed to pay which bill, resulting in communication failures that may cause medical bills to go unpaid and end up with collection agencies.

The best thing you can do in this situation is to talk to your insurance providers and pin down which medical bills they are responsible for paying, and then follow up with the healthcare providers to ensure those bills claims get paid. Additionally, keep an eye on your mail. If something goes wrong with the billing, your healthcare provider will typically notify you about the problem. Reading your mail on a regular basis can help you avoid missing important notices about unpaid expenses.

Public Record Credit Report Entries

A third way your credit score can take a hit is if you're sued for damages in court and lose. Lawsuits are a matter of public record, and court awards in favor of the plaintiff show up as a negative entry on the defendant's credit report. Even if you pay off the award in a timely manner, the entry can stay on your report for up to 7 years after the date the lawsuit was filed.

The impact a court loss has on your credit lessens over time, but you can prevent the it from showing up at all by settling the case before it's decided in court. Settlements are not considered public record and, thus, will only show up on your credit report if you fail to pay and the plaintiff sends the bill to a collection agency.

For more information about protecting your credit after an auto accident or help with a case, contact an attorney at a law firm like Bennett & Sharp PLLC.