How BNPL will affect Gen Z's credit scores
How BNPL will affect Gen Z’s credit scores
Man using laptop to display his excellent 811 credit score.

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BNPL plans have grown in popularity and could help young consumers build credit.


Key points

  • “Buy now, pay later” plans saw 62% growth among younger consumers from July 2020 to March 2021.
  • These payment plans could help Gen Zers get credit more easily.

The concept of paying for purchases over time is not new. Consumers regularly charge expenses to their credit cards and carry over their balances, paying them off when they can.

The problem with credit card balances, however, is accumulating interest on that debt. That’s why a new alternative is gaining ground.

“Buy now, pay later” plans, or BNPL plans, have seen explosive growth in recent years. And young consumers are rushing to take advantage of it.

A recent Ascent research report found that between July 2020 and March 2021, the use of BNPL plans increased by 62% among consumers aged 18-24. The advantage of these packages is that they allow consumers to pay for their purchases in installments, usually over a period of 12 years. week period. Those who stick to their payment plans incur no interest or fees, making BNPL plans a more cost-effective alternative to credit cards.

But it’s not just that BNPL plans save consumers money. In some cases, they could help consumers build credit.

An easy way to boost your credit score

Young consumers often struggle to establish a credit history because they haven’t had much time in the job market and haven’t had too many loans or credit cards in their name. But a lack of credit history could lead to a lower credit score, making it harder for younger consumers to access affordable borrowing options.

Hopefully BNPL’s plans will help change that. As BNPL data is increasingly incorporated into credit scores, those who make their payments on time under these agreements could benefit enormously.

As Silvio Tavares, President and CEO of VantageScore, explains, “Buy Now Pay Later is helping many consumers access short-term credit to make purchases at a time of rapidly rising prices. better credit ratings. We believe adding this data to credit scores can contribute to broader financial inclusion and are working quickly to integrate it into VantageScore models.

Ethan Dornhelm, vice president of scores and predictive analytics at FICO, agrees. “As BNPL loans become a more common form of credit used by consumers,” he says, “these loans could also become an important factor in consumer credit reports and, by extension, in FICO® scores based on on these credit reports”.

Dornhelm believes younger consumers with limited credit histories could particularly benefit from integrating BNPL plan data into credit reports. “Those with very low scores or thin credit records are more likely to benefit from adding positive BNPL information. If the consumer has no existing credit accounts reported on their credit report, then the BNPL loan could allow him to start building a credit history and eventually receive a FICO® score,” he explains.

Beware of BNPL packages

Of course, BNPL plans have the potential to hurt consumers’ credit scores as well as help them. Those who fail to meet their payments under these agreements could see their credit ratings negatively affected, in the same way that late credit card payments would have a similar effect.

But consumers who track their BNPL payments could see their credit scores increase over time as a result of this positive behavior. And that’s just another good reason to shop with BNPL plans, but with caution.

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