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.
  • Experian will be the only one to count these loans towards – or against – credit ratings for the time being.
  • 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 loan.

BNPL loans such as those offered by Affirm, Afterpay, Klarna and PayPal’s “Pay 4” option have become increasingly popular in recent years, especially among Gen Z shoppers. what they say, that is, offer buyers 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.

The rise of the BNPL has led to a pandemic-era spending and debt boom, prompting the Consumer Financial Protection Bureau to launch an investigation into BNPL companies in December, citing concerns regarding debt growth, consumer protection laws and data collection.

The three bureaus take different approaches when it comes to integrating 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 Equifax will begin collecting information about an individual’s outstanding BNPL loans, but will not incorporate it into a credit report. TransUnion and Equifax, however, have provided for the possibility of doing 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 credit bureau master data,” Experian said 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, said Liz Pagel, senior vice president. of TransUnion, told CNBC last week, and Experian’s chief product officer, Greg Wright, said 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. Other than storing the data, Experian and TransUnion haven’t said what else they plan to do with it.

Equifax, on the other hand, will do bi-weekly BNPL loan reports.

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

Susan Sterne, president and chief economist at Economic Analysis Associates, told Insider’s Ben Winck in January that credit bureaus should have investigated BNPL’s impact sooner, due to the risk of a possible price bubble. 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.”