Buy now, pay later (BNPL) loans are growing in popularity because they provide a convenient way to pay for larger expenses over time. These loans have not previously been reported on consumer credit reports. But that is about to change.
Buy now, pay your loans later are attractive. Some of these loans offer a 0% interest rate for a limited period, while others offer low interest rates. Consumers can pay off debt in regular installments and spread the cost of expensive purchases.
Since many BNPL services do not apply for firm credit for approval, this is a great loan option for people with minimal credit history. It may be more difficult for these consumers to obtain approval for other financial products, such as credit card.
We conducted a survey to examine the popularity of BNPL services. We found that more than half of Americans have used BNPL loans and these services continue to grow in popularity.
Typically, these loans do not show up on credit reports. However, everything three credit bureaus recently announced plans to include buy now, pay later, payment and account data, and consumer credit report activity. But it won’t be an overnight change.
Here’s why BNPL loan data wasn’t released sooner
BNPL service activity has generally not been reported in credit reports, as this type of data does not integrate well with the current system, which analyzes revolving credit and long-term loans like mortgages and car loans.
Because BNPL services are installment loans, some consumers take out multiple BNPL loans per year. With most current credit models, taking out multiple BNPL loans could be considered risky. For this reason, including such activity in credit reports could penalize consumers.
But industry experts believe that consumers should be able to benefit from BNPL’s services and have the opportunity to improve their credit by making responsible choices with these loans. This includes regular and one-time payments and repayment of BNPL loan balances.
Although the credit bureaus will soon be reporting this data, they want to take steps to protect consumers from the immediate potential negative impact on credit of including this data without first adjusting the current system.
It will take time for the industry to adapt and make room for BNPL loans – so consumers should not expect instant changes.
What to expect from the three credit bureaus
Eventually, all three credit bureaus will report some BNPL data, but how they process that data will vary. Here’s what we know so far:
Experian plans to launch its own product, The Buy Now Pay Later Bureau™, in the spring of 2022. This product will include essential BNPL account data. Initially, BNPL data will be stored separately from Experian’s central credit bureau data and may be requested by lenders.
During the first quarter of 2022, Equifax will formulate a standard process for including BNPL data in traditional consumer credit reports. This includes the implementation of a new commercial industry code used to classify industry. The long-term plan is to include this data in regular consumer credit reports.
TransUnion recently launched its own new BNPL credit reporting service, called Point-of-Sale Suite Solutions. The credit bureau will include BNPL data in its reports. This data will appear on a separate part of credit reports and will be made available to lenders.
What this means for consumers
If you use BNPL’s services, you can expect relevant data to appear on your credit file very soon. Although it won’t happen right away, it will eventually become a reality.
For consumers who are new to building credit, including BNPL on their credit report could offer a way to establish credit and improve their credit score. But to benefit, consumers will need to make responsible choices, such as making payments on time.
Whatever personal finance tools you use, it’s important to choose wisely and be careful. Do your best not to ignore your debts, make late payments or miss payments.
BNPL loans can be beneficial, but they can cause you financial stress if you are not careful. Only take BNPL loans if you can afford to make regular payments without ignoring your other financial obligations. Always consider the impact of your actions on your financial well-being.
If you’re looking for tips and advice on how to improve your finances, check out our personal finance resources.
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