From obtaining loans and credit cards to securing housing or new employment, our credit scores touch nearly every aspect of our financial lives. But where do they come from, really?
Lenders and other agencies report borrower activity to the national credit bureaus – and the process is always changing. Here are 5 recent updates to credit reporting all consumers should know about.
1. Good news for consumers with medical debt
The US healthcare system is far from perfect. The cost of treatment can be unpredictable and vary widely based on patient and provider. Even with medical insurance, many folks find themselves unable to meet the out-of-pocket costs of essential care.
Until recently, over 43 million Americans had unpaid medical debt on their credit report. In fact, a whopping 60% of total US collections debt was due to delinquent medical bills. According to research, these debts affected Black and Hispanic households disproportionately.
As of July 2022, the national credit bureaus implemented changes that wiped out an estimated 70% of medical debt from consumer credit reports. Here’s what you need to know.
- Paid-off debt removed: Paid-off medical collections tradelines must be removed from consumer credit reports. Previously, these records could plague your credit history for up to seven years.
- Extended grace period: Consumers now have 12 months to pay medical debt or establish a repayment plan. Previously, it could fall into collections after just six months.
- Minimum debt limits: Starting in 2023, unpaid medical debt under $500 will no longer show up on consumer credit reports. This matters, because most medical collections tradelines are less than this amount.
2. Debt collectors must contact consumers before reporting
Until late 2021, debt collectors didn’t have to make contact with a consumer before reporting to the national credit bureaus. As a result, folks could find themselves with collections tradelines that popped up - seemingly - out of nowhere.
Thanks to updates to credit reporting regulations, collectors now need to make a greater effort to contact consumers. They must:
- Speak to the consumer by phone or in person
- Mail a letter or send electronic communication (like a text or email) and wait at least 14 days to ensure they do not receive a notice of non-deliverability
- If the collector receives a notice of non-deliverability, it can’t report the debt until it achieves one of the above
Good to know: debt collectors can only call you seven times within a seven-day period. However, they can now message you via text and social media – but must offer the option to opt-out.
3. Student loan forbearance may soon end, but loan forgiveness is still on the table
The Federal student loan pause helped borrowers stay afloat during the COVID-19 pandemic. However, these payments are set to resume in September after two years in forbearance.
The Biden administration may still extend the student loan freeze. But if this grace period comes to a close, you’ll need to start paying your loans again. Otherwise, late payments will show up on your credit report.
While no announcements have been made, several factors suggest President Biden will extend the pause. There are also hopeful signs for the future of broad student loan forgiveness.
It was recently revealed the US Education Department has put procedures in place to implement a wide-scale student loan forgiveness program. Biden has indicated he’ll announce a final decision by August 31st, the date student loan payments are set to resume.
In other words – cross your fingers and stay tuned.
4. Fannie May counts rental history in mortgage applications
Millions of folks pay their rent on time. But until recently, this didn’t help much when it came to buying a home. That’s because positive rental history usually doesn't show up on your credit report.
In August 2022, Fannie Mae (a top US mortgage lender) began considering rental payments as part of applicant credit profiles. This change is intended to give lenders a more accurate, relevant picture of a borrower’s payment habits.
To be eligible, a borrower must:
- Be a first-time buyer purchasing a primary home (not a rental property)
- Have a credit score of at least 620
- Have at least 12 months of rental history of at least $300 per month
- Provide bank records of their last 12 months of rent payments
These changes will help millions of responsible renters access mortgage loans. Unfortunately, folks with credit scores below 620 won’t benefit, even if they always pay their rent on time.
With platforms like StellarFi, paying rent responsibly can actually improve your credit score. Check it out, build your credit, and tap into the perks of Fannie Mae’s new evaluation process.
5. You can now build credit with your existing expenses
Trying to obtain a loan or credit card with poor credit is a discouraging cycle. You need to use credit to improve your credit, but you need good credit to get approved.
Even if you can’t access traditional credit opportunities, chances are you pay your bills responsibly. Sadly, on-time payments usually don’t show up on your credit report – until now.
With StellarFi, you can turn your monthly expenses services into credit builders. Just sign up and link recurring payments like your rent, cell phone bill, and even your gym membership. Stellar operates behind the scenes to report your positive repayment history to the credit bureaus.
Getting started is simple, and there’s no credit check. Join StellarFi and start building better credit today.
