Credit reports become some important adjustments. Information from Buy Now, Pay Later (BNPL) companies will now be added to consumer credit reports from the three major credit bureaus – Equifax, Experian and TransUnion – and some medical debt information will be removed.
Consumers with medical debt should see their scores increase. Beginning in July, 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.
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, says 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, breaching both the payment history and the credit history of the credit scoring algorithm could result in a drop in your score, says Schulz. 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, which is 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.
For more information on how to troubleshoot your credit reports, check out How to Build Wealth (or Rebuild It.)