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4 Big Changes to Credit Reports and Credit Scores

How medical debt, ‘buy now, pay later’ and more can affect your standing

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Your credit standing has a major impact on many aspects of your financial and personal life. 

Having great credit carries benefits like getting lower-rate loans, easier approval to rent property and better car insurance rates. So it pays to stay on top of your credit — and of the ways credit scoring is constantly evolving. ​

Here are four big changes you need to know about credit reports and credit scores.

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1. Most medical debt to be removed from credit reports 

Starting this summer, the three main credit bureaus — Equifax, TransUnion and Experian — are implementing a series of changes that will drastically change how medical debt is treated on Americans’ credit reports.

Among the changes: 

  • Starting July 1, paid medical collection debt — bills that were turned over to a collection agency but eventually satisfied — will no longer appear on consumers’ credit reports. 
  • Also from July 1, consumers will get a full year to work out insurance or billing issues before unpaid medical debt gets reported on their credit files. Currently, this grace period is six months.
  • In the first half of 2023, the credit bureaus will begin omitting all medical collection debt under $500 from credit reports.

The credit bureaus say these changes will remove roughly 70 percent of medical collection debt from consumer credit reports. That’s sure to be a welcome relief for the tens of millions of Americans who have an estimated $88 billion in medical debt on their ledgers, according to a February 2022 report

 from the Consumer Financial Protection Bureau.

 

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“These are very significant changes to credit reports because so many people have suffered with this problem,” says Beverly Harzog, credit card expert and consumer finance analyst for U.S. News & World Report.

“Negative information about medical debt can really bring down your credit score a lot,” Harzog adds. “These changes are really going to help a lot of people boost their credit score and help them get back on track.”

2. ‘Buy now, pay later’ accounts added to credit files 

If you’ve shopped online at places like Amazon, Walmart or Target, you’ve probably been offered the opportunity to pay for your purchase in installments, through an emerging credit model called “buy now, pay later,” or BNPL. With BNPL, customers pay for purchases over several weeks or months, often with no interest. 

BNPL options provide people with payment flexibility and the appeal of no finance charges (unlike most credit cards). Nearly 100 million U.S. adults have used BNPL to finance purchases over the past year, according to a February TransUnion survey. But BNPL accounts may be classified on your credit report as short-term loans, and that can lower your score.

Here’s why: The “average age” of your credit accounts is a factor in calculating your FICO score, the gauge of creditworthiness most commonly used by banks and lenders. Each new credit obligation, including from BNPL deals, decreases the average age of your credit history. And some people are using buy now, pay later repeatedly.

The bottom line: Even if you pay a BNPL account on time, be mindful of the possible hit to your credit score.

3. Free credit reports available through the end of 2022

The economic fallout from the COVID-19 pandemic wreaked havoc on millions of Americans. Between job layoffs, business interruptions and social distancing, the past two years have been tough for a lot of people, especially older adults

Early in the pandemic, many lenders and creditors offered more flexible payment options, such as loan deferments or forbearances, to help people struggling to keep up with bills. The credit bureaus stepped up, too, offering all U.S. adults free weekly credit reports. (Pre-pandemic, you could get one free report from each bureau per year.)

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That offer was supposed to expire April 20, but the credit bureaus recently extended it until the end of the year. Through Dec. 31, you can continue to request free weekly reports online.

Harzog says monitoring credit files once every few months, alternating between reports from each bureau, is sufficient for most people. 

“However, if there’s something major going on in your life — like a divorce, or you’ve had a problem with identity theft — then I would check my credit reports every week, just to keep tabs on everything and make sure they’re OK,” she adds. 

4. New emphasis on ‘trended data’

There are more than a dozen versions of the FICO score. The most recent model, dubbed FICO 10, debuted in January 2020, right before the pandemic began. 

Like its predecessor, FICO 9, FICO 10 takes rental payment history into account. Equally important, it more closely scrutinizes “trended data,” evaluating factors like balances and payment amounts over a longer period: 24 months or more, as opposed to looking at a one-time snapshot of your debt levels whenever your credit score is pulled.

FICO 8 and 9 remain the most widely used models, but as more lenders adopt FICO 10, people may see their scores rise or fall based on their debt patterns over many months or even years. It may not be enough to just pay your bills on time each month; to maintain a score at the upper end of FICO’s 300-850 range, you’ll need to manage debt wisely over time and avoid moves that can lower your score, such as maxing out your credit cards or taking on a bunch of personal loans.

Lynnette Khalfani-Cox is a personal finance expert, speaker and author of 15 money-management books, including the "New York Times" bestseller "Zero Debt: The Ultimate Guide to Financial Freedom."

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