As the new year begins, many new enrollees to Flexible Spending Accounts will be getting their debit cards in the mail — a small piece of plastic that allows them to access their tax-free dollars for health care expenses.
But do these cards have any impact on your credit score? Credit scoring expert Barry Paperno has a very straightforward answer.
“While FSA cards look and behave like credit or debit cards where they’re accepted, like debit cards they don’t appear on your credit report or are included in your credit scores, primarily because they’re not truly credit accounts where a lender is making a loan to you,” he says. “Rather, the FSA consists of money you have transferred, or will be transferring, from your paycheck.”
An FSA is an account that holds pre-tax dollars for Americans to use on health expenses. Consumers receive a benefits card that allows them to access the funds, which are automatically rolled into the account via direct deposit. One of the most important catches to an FSA is that participants can lose the money they’ve placed in the account for that year if it is not spent before a specific deadline, which generally is Jan. 1 or March 31, depending on the plan.
Another thing to be mindful of when using your FSA debit card is that all of the charges need to be substantiated in order to prove to the IRS that you’re using the funds for medical expenses and not just to buy a bag of chips because your non-FSA debit card is running low. This means that you need to keep a copy of your receipt for every purchase you make on the card and make sure you’re buying an item that qualifies. The best source of information on what does or does not qualify is your insurance company’s website.
Is there a possibility that FSA cards could eventually factor into a credit scoring model? Paperno says it’s unlikely, but the major credit bureaus would do some research first to figure out how to weigh them in your score.
“If FSA accounts were to be included on credit reports, the credit scoring companies such as FICO (Fair Isaac Corp.) and VantageScore would first want to study the predictive value of this information before considering its inclusion in their credit scoring algorithms,” Paperno says.
Image: Autistic Psycho, via Flickr