Credit reports are getting some significant changes.
Information from the Buy Now, Pay Later (BNPL) companies will now be added to the consumer credit reports of the three major credit reporting companies – Equifax, Experian and TransUnion – and some medical debt information will be removed.
Consumers with medical debt should see their scores increase. Beginning in July 2022, medical debts sent for collection but eventually paid off will be removed from all three reports. Plus, any new medical debt you incur won’t show up on your credit reports until one year after it’s sent for collection.
Currently, credit reports start showing an unpaid medical account 180 days after it’s sent to collections, and it can stay on your credit reports for up to seven years after you’ve paid off the debt.
And starting in 2023, the three companies will no longer report medical debts under $500.
These measures should eliminate 70% of medical debt reports.
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Meanwhile, consumers’ use of online BNPL systems will also show up in reports, which can be good or bad for credit scores.
BNPL firms, including Affirm, Klarna and Afterpay, offer you a cash loan to cover your purchase. Until now, credit bureaus haven’t tracked these loans, and it’s unclear how information from the BNPL will factor into credit scoring formulas, said Matt Schulz, chief credit analyst at LendingTree, an online lending marketplace.
People who repay their installment loans could see their scores go up, and loan tracking can give some people a score they didn’t have before. However, if you miss payments or take out a large number of these short-term loans, the impact on both the payment history and the credit history of the credit scoring algorithm could lead to a lower of your score, Schulz said.
Payment history counts for 35% of your FICO score, with length of credit history counting for 15%. And if your BNPL loans increase your utilization rate – the amount of available credit you use – that could also affect your score.
If you’re considering using a BNPL loan, it’s a good idea to set up automatic payments from your checking account or debit card to pay it off as soon as possible.
Visit Kiplinger.com to learn more about this and similar money-related topics.