4 MAJOR Changes Coming to Your Credit Score!

There are some major changes coming to your credit score and they’re going to affect you. You probably know how important good credit is for your financial and personal life. A great credit score will save you hundreds of thousands of dollars in the long term and affects the interest rate. Anytime, you’re borrowing money which in today’s society is often for most people. I’m going to tell you about the four biggest changes coming to your credit score either this year or next year. How is it going to affect your finances?

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Let’s get started. Number one most medical debt will be removed from credit reports, so earlier this year you the three main credit bureaus: Equifax, Transunion and Experian are going to implement some changes to how medical debt is treated on American credit reports. So, more specifically, starting July 1st paid medical debt that was in collections will be removed from credit reports . You’ll also have a full year to work out any insurance or billing issues before unpaid medical debts get reported on your file so that means that if you paid your medical debt in full. The debt is still sitting on your credit report as a negative mark. It’s going to be removed. 

This is really good news because it will help millions of Americans who had an estimated 88 billion dollars in medical debt back in February of this year. In addition to those changes, credit bureaus are also going to start emitting. All medical collection debts under 500 in the first half of 2023. Basically what this means is that if you owe under 500 in medical debts that will be cleared completely. But, if you owe more than 500, you’ll have a full year to actually work something out with the medical insurance company or the hospital. This is going to have a huge impact as credit bureaus say. These changes will remove about 70 percent of medical collection debts from consumer credit reports, especially with the pandemic. Lots of people struggle due to factors that were out of their control, so I really like that they’re trying to help people out with their debt and give them some time so that. They can have a chance to fix things before it ends up in collections. If you don’t know how medical debt works, I’m quickly going to go over the basics. First, you hopefully have medical insurance and that lets you know through their policy. What they cover and what they don’t cover. Once your insurance company is billed by the medical provider for the services, so let’s say you went to the emergency room for a broken leg the provider will actually bill you for the remaining balance that your insurance company does not cover. If you don’t pay your bills after several months, the debt is usually sold to a collections agency and they’re going to try and collect it which is when your credit score goes down. 

The main problem that people face is being aware of their medical debt in the first place because oftentimes when they realize that they do have a medical bill. It may already be overdue and on its way to collections. This is why I always recommend that people set aside three to six months for an emergency fund. In case, there’s a medical emergency, it’s also why I recommend having something like aura that can help you monitor these things, but more on that later. Even if you don’t think medical debt hurts you now. I strongly recommend that you start saving up for unforeseen circumstances as the stats show that nearly 1 in 10 adults owe a medical debt which is just crazy. I also recommend checking your medical bill for any errors because that is also another common problem, for example, you could be given aspirin and later receive a bill that accidentally charged you for the entire bottle which can easily increase the bill by. 

Let’s say a couple hundred dollars, so overall this change to your credit report is good news for people with medical debts because you’ll either have this debt taken off your file or you’ll have extra time to sell it with your provider. So, if this is currently affecting your score, it’ll likely be resolvable after July 1st next up is that buy now paid later accounts will be added to your credit report. This is probably going to affect a good amount of you guys because if you’ve shopped online at places like amazon Walmart or target. You’ve probably been asked if you wanted to pay for the purchase over several weeks or months with zero interest. According to Experian, four in five us consumers use BNPL on everything from clothing to cleaning supplies where they can replace traditional payment methods with this purchasing option. It often provides bonuses and convenience and with zero percent financing. 

It’s no surprise that this option has been very popular over the last few years the data shows that nearly nine percent of customers are using buy now pay later services more than once a week. So, the bad news is these purchases are going to be classified as short-term loans on your current report that can lower your score. This is because each new credit obligation decreases the average age of your credit history. This adds another layer to your debt-to-income ratio that you now have to worry about and many people are probably not going to see negative inquiries on their credit report until it’s too late. This can make a lot of people go into debt and, as a result, damage their credit scores especially with inflation making it more appealing to go with these flexible payment plans. So, to prevent this I highly recommend that you don’t purchase anything that you can’t afford as it’s been estimated. 70 % of people that use buy now and pay later services, have admitted to spending more than they would have. If they paid for everything upfront, there’s also the fact that 42 of those consumers have made a late payment on one of those loans. So, if this is you definitely should not be using this type of service because it’s going to be added to your correct report to make matters worse fraud attacks on BNPL platforms have gone up 54 years. The main way people were hit with these fraud attacks was through fake BNPL accounts being set up using their credentials which was reported to be 26 of victims.

So, the next big change is that there will be free credit reports until the end of 2022. Normally, everyone can get one free credit report every year from each of the three credit reporting agencies. However, during the pandemic credit bureaus lenders and creditors offered more flexible payment options to help people that were struggling and there were free weekly credit reports for us adults. This offer was supposed to expire on April 20th, but recently they actually extended it until the end of the year. So, through December 31st, you can continue to request free weekly reports online. This is really good news because it gives you extra protection on your credit and if you haven’t pulled a current report yet, I highly recommend that you do. So, there could be things that are negatively impacting your score that you aren’t even aware of. You’ll want to go to annualcreditreport.com which is the official site to request free copies of your credit reports as other sites may charge you or be scammed trying to steal your personal information. 

You’ll be able to see things like how many credit cards and loans. You have whether you pay your bills on time and whether any debts have been turned over to collections you want to check. If there are any mistakes like accounts or bankruptcies that aren’t yours because this happens actually more than you might think especially after a major event in your life. It’s really important to be able to check your credit report every week to make sure that everything is okay in general. You’ll want to check it as often as possible to check for signs of identity theft or anything suspicious because the sooner you spot an error the easier. It will be to fix it before it shows up as a negative mark on your credit report and lastly. There is a new fico credit score that focuses more on trending data there are many different versions of the fico score. The most recent model was fico 10 which came out in 2020 before the pandemic. This score takes rental payment history into account and also evaluates balances over a longer period, so 24 months or more as opposed to just looking at your debt levels whenever your credit score is pulled. This isn’t something to be really alarmed by yet as fico 8 and 9 are the most widely used models. But, as more lenders adopt fico 10. People may see their scores rise or fall based on their debt levels over a long period of time. 

This would mean that it then takes more than just paying your bills on time each month to maintain an excellent score. You’d have to manage your debts carefully over time and avoid doing things such as maxing out your credit cards or taking on a bunch of personal loans. Your score will most likely drop if you use a credit card to get by and the balance stays the same or keeps growing it’ll also drop if you missed a payment as the penalty will be even harsher than it was under previous fico scoring models. In addition to those, you’ll also see a drop if you try to take out a personal loan to consolidate credit card bills but then apply for additional credit or your balance goes back to where it was before. If you want to have a higher score on the fico 10 model, you should consistently pay down your balances and start an emergency fund because if you have to use credit cards in an emergency. A rising balance could hurt your scores if you’re thinking of consolidating credit card debt with a personal loan. I’d actually avoid charging up balances again because, as I said, it will suggest that you’re facing financial difficulties. As a result, lower your score, so although, this will add some difficulty to maintaining a good score the fundamentals of having good credit remain the same as long as you keep paying every bill on time and have low credit utilization rates. 

This article is a transcription of a video made by Charlie Chang 

Original video: https://youtu.be/m_2uKFavGAU