What is a medical credit card, and should you apply for one?

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With healthcare costs rising, many Americans are turning to medical credit cards to manage their health-related expenses. You can use these cards to pay for treatments from doctors, dentists, and sometimes even veterinarians. 

But before you sign up, it's crucial to understand how they work and the potential risks involved.

What is a medical credit card?

A medical credit card is a specialized type of credit card that you can use exclusively for healthcare expenses. Unlike general-purpose credit cards, which you can use for any purchase, medical credit cards are designed specifically for medical, dental, and sometimes even veterinary care costs.

Here's what you need to know about medical credit cards:

• Healthcare providers often promote these cards directly in their offices, which is why you might encounter them when visiting your doctor or dentist.
• Some cards may restrict what medical expenses you can charge. For instance, a card might cover dental work but not cosmetic procedures.
• You may need to use providers within the card's network, meaning you can't necessarily use the card with any healthcare provider you choose.
• These cards now cover various medical costs, expanding beyond their original purpose of financing elective procedures not covered by insurance. Many cards allow the healthcare provider to decide which services qualify for payment.

The popularity of medical credit cards is on the rise. According to the Consumer Financial Protection Bureau (CFPB), CareCredit, one of the largest providers of medical credit cards, saw its cardholder base grow from 4.4 million in 2013 to a whopping 11.7 million in 2023. 

This surge in popularity is mainly due to increasing healthcare costs and higher insurance deductibles, which leave many patients looking for ways to manage out-of-pocket expenses.

How medical credit cards work

Understanding how medical credit cards operate is crucial before deciding whether to apply for one. Let's break down the key aspects:

Application process

The application process for a medical credit card is often different from that of a traditional credit card:

• You can typically apply for a medical credit card at your doctor's or dentist's office. This on-the-spot application process can be convenient, but it also means you might make a financial decision under pressure.
• The CFPB reports complaints from consumers who say medical office staff don't always fully understand or explain the card's terms and conditions, so it’s important to do your own research before applying.
• Some cards, like CareCredit, offer online prequalification without affecting your credit score. This process usually requires you to provide personal information such as your Social Security number.
• While prequalification might not require a hard credit check, final approval usually does. This type of credit inquiry can temporarily lower your credit score by a few points.

Usage and limitations

Medical credit cards come with specific rules about how and where you can use them:

• You can only use the card with providers in the card's network. For example, CareCredit has a network of over 260,000 locations, which still limits where you can use the card.
• Services may include dentistry, cosmetic surgery, hearing care, LASIK, and even veterinary care. However, the exact services covered can vary by card and provider.
• Like traditional credit cards, medical credit cards have a credit limit. You can charge multiple expenses to the card if you don't exceed this limit.
• You can typically use the card to pay for medical expenses for yourself and your family members.

Repayment terms

Understanding the repayment terms is crucial to avoid any expensive surprises:

• As with any credit card, you'll receive a monthly bill, with the first typically arriving within 30 days of using the card.
• You can avoid interest charges if you pay your bill in full each month.
• However, interest rates on medical credit cards are typically higher than those on general-purpose credit cards. For example, as of September 2024, CareCredit's purchase APR for new cardholders is 32.99%, with a penalty APR of 39.99%.
• Many medical credit cards offer promotional periods with deferred interest. This means you won't pay interest if you pay the entire balance within a set period (often six, 12, or 18 months). However, if you don't pay the whole balance by the end of the promotional period, you'll be charged interest on the original balance, dating back to the purchase date.

Advantages of medical credit cards

When used correctly, medical credit cards can offer several benefits:

• Immediate access to care: These cards often provide quick acceptance through your doctor's office, allowing you to decide whether you can afford the recommended care.
• Potential for interest-free financing: If the card has an interest-free promotional period, you can avoid paying any interest by paying the entire bill before the period ends. This can be particularly useful for expensive procedures.
• Payment flexibility: Unlike traditional medical payment plans, which often require fixed monthly payments, medical credit cards may offer some flexibility. Outside of promotional periods, you might be able to make minimum payments during tight financial months and larger payments when you have more funds available.

Risks and drawbacks

While medical credit cards can be helpful, they also come with significant risks:

High interest rates 

The typical APRs on medical credit cards are over 30%, much higher than the average rate on general-purpose credit cards. According to the CFPB, general-purpose credit card APRs averaged 22.8% in 2023.

Potential negative impact on your credit score

Making late or missed payments on your medical credit card can cause a significant drop in your credit score. As of 2023, creditors no longer report medical bills under $500 in collections to the credit bureaus. However, this rule doesn't apply to unpaid medical bills on a credit card.

Deferred interest

The deferred interest offers on medical credit cards can be risky. If you don't pay off the entire balance before the promotional period ends, you'll pay interest on the total original balance, dating back to the purchase date.

Renee Robinson-Jones, vice president at Georgia's Own Credit Union, warns about the tricky nature of deferred interest: "When you're in a promotional period, be very conscious about making payments and understand the difference between the promotional expiration date and the bill due date."

For example, if a 12-month promotional period begins on October 1, you have until September 30 next year to pay off the bill. If your final payment is due on October 10, you must pay it before the promotional period ends at the end of September, or you will pay all the interest for the entire year. For a $1,000 bill at 32.99% APR, a year's interest would be $329.90.

Traditional credit cards that offer zero-interest promotions don’t use deferred interest. If you charge something and can’t pay it off during the promotional period, you’ll only pay interest for the period after the promotion ends.

 Alternatives to medical credit cards

Before applying for a medical credit card, it's worth exploring other options:

• Healthcare payment plan: Many healthcare providers offer their own payment plans. The Affordable Care Act requires hospitals to have a financial assistance policy, which you can usually find on your bill or the hospital's website. Eligibility varies, but it’s always worth asking.
• Financial assistance programs: Nonprofit hospitals often offer financial aid for patients. It’s less common at for-profit or private hospitals, but according to the CFPB, some states require certain hospitals to provide free or discounted care to those who qualify. 
• Advocacy groups: Some non-profit groups, such as the Patient Advocate Foundation, work with patients to fight health insurance denials and medical debt problems or offer grants for healthcare bills.
• Personal loans: If you have good credit, you may qualify for a personal loan with a much lower interest rate than the charges on a medical credit card.

Kate Watt, a financial wellness expert for Greenpath Financial Wellness, emphasizes the importance of exploring all options: "Almost every client I see has medical debt, some as high as $24,000. It's worth discussing payment options with your healthcare provider before using a medical credit card."

How to use medical credit cards responsibly

If you decide that a medical credit card is the right choice for your situation, here are some tips for using it responsibly:

• Read all terms and conditions carefully before applying. Make sure you understand the interest rates, promotional periods, and any fees associated with the card.
• If you're using a promotional offer, pay the balance before the promotional period ends to avoid hefty deferred interest charges.
• Consider getting paper statements to help you keep track of your payments. As Robinson-Jones suggests, "We tend to ignore electronic statements. Pay attention to the payment due date vs. the promotional expiration date."
• Try to pay more than the minimum due each month, even during promotional periods. This can help you pay off the balance faster and reduce the risk of owing deferred interest.

The bottom line

Medical credit cards can provide quick access to healthcare financing, but they have significant risks, particularly high interest rates and the potential for sizeable deferred interest charges. Before applying, carefully weigh the pros and cons and explore all your options, including payment plans directly with your healthcare provider and personal loans.

Your health is important, and you want the best care possible. But it's equally important to make an informed decision about how to pay for that care. Take the time to understand all your options and choose the best fit for your situation.

Editorial disclosure: Opinions expressed are author's alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.