Buy now, pay later Loans will soon count towards your credit score
Buy now, pay later Loans will soon count towards your credit score
  • The three major credit bureaus will begin collecting data on “buy now, pay later” loans.
  • Equifax will be the only one to count these loans towards – or against – credit ratings at this time.
  • The federal government is investigating BNPL services for too much debt for buyers and collecting data.

Accepting the enticing “buy now, pay later” offer you see when shopping online could start counting towards – or against – your credit score.

That’s because the three major US credit bureaus, TransUnion, Equifax and Experian, will collect data on such purchases, according to their press releases. If you make payments on time, it could increase your credit score. otherwise, it could harm him, which in turn could affect your ability to get a mortgage, credit card, or other loans in some cases.

A representative from Equifax told Insider that a BNPL loan won’t necessarily make or destroy an individual’s credit score, which depends on a mix of payment history and total amount of debt. .

BNPL loans such as those offered by Affirm, Afterpay, Klarna and PayPal’s “Pay 4” option have become increasingly popular over the past few years, Above all among Gen Z shoppers. The services essentially do what they say, which is to offer shoppers short-term, often interest-free loans to pay for their purchases. Buyers sign up for a scheduled repayment plan and repay the debt in installments.

BNPL’s rise has led to a pandemic-era spending and debt boom, prompting the Consumer Financial Protection Bureau to open a survey of BNPL companies in December, citing concerns about growing debt, consumer protection laws and data collection.

The three bureaus take different approaches when it comes to incorporating the relatively new buying phenomenon into the financial profiles of credit users. Equifax will be the only one of the three where a BNPL provider can choose to include BNPL loans in your base credit score calculation. TransUnion and Experian will begin collecting information about an individual’s outstanding BNPL loans, but will not incorporate it into a credit report. TransUnion and Experian, however, have provided for the possibility that they may do so in the future.

“To protect consumers’ credit scores from immediate negative impact, detailed information relating to each BNPL transaction will be stored separately from Experian’s central credit bureau data,” Experian said. noted in a press release.

Experts are cautious about buy now, pay later and its impact on credit scores

TransUnion plans to use BNPL loans to calculate consumer credit scores in the future, but it will likely take a few years for credit bureaus and reporting models to adapt, Liz Pagel, senior vice president at TransUnion , Recount CNBC last week, and Experian’s product manager, Greg Wright, noted the same thing.

For now, BNPL information will be separated from credit information in these two bureaus so that it will not negatively impact credit scores – but it will not improve them either. Besides storing the data, Experian and TransUnion haven’t said what else they plan to do with it.

Equifax, on the other hand, encourages BNPL providers to report data every two weeks, to align with the platform’s payment frequencies. However, it will be up to the providers to decide whether or not they transmit data to Equifax and how often.

The office will also tally BNPL lines of credit and give companies that generate scores the ability to view and decide how to incorporate BNPL data, Equifax noted in a press release.

Susan Sterne, president and chief economist at Economic Analysis Associates, told Insider’s Ben Winck in January that the credit bureaus should have investigated the impact of BNPL sooner, given the risk of a possible bubble in the market. credit. Credit bubbles describe an increase in forms of credit, such as loans.

“The big three agencies that track consumer debt haven’t really gotten their hands on it yet because it’s a relatively new concept,” Sterne said. “They were diligent after the financial crisis, but I guess nothing changed. They should have been more aware of that.”

Editor’s Note: This story has been revised to reflect that Experian, not Equifax, will begin collecting information about an individual’s outstanding BNPL loans, but will not yet incorporate it into a credit report. . However, TransUnion and Equifax (not Experian) have left open the possibility of doing so in the future.

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