Buy Now Pay Later (BNPL) has become a popular option for paying for purchases over time. With BNPL, lenders divide your purchase into multiple equal payments in a type of installment loan. The first payment is usually due at checkout, with the others made over a period of weeks or months.
Over the past year, at least 100 million Americans have used BNPL, according to TransUnion. And in most cases, those installment loans are not included on their credit reports. However, that may change eventually, as all three credit bureaus—Equifax, Experian, and TransUnion—have recently announced plans to begin accepting BNPL payment data.
Starting in 2023, the credit bureaus will accept data about BNPL payments, but that doesn’t mean BNPL will influence your credit score. Here’s what you need to know.
Each Bureau Will Handle Data Differently
While all the bureaus will be accepting BNPL data, they have not agreed on a standard approach. And they have not agreed to include the data on traditional credit reports.
Experian is planning a specialty bureau to hold BNPL data. Information from the specialty bureau will be periodically “promoted” into the consumer’s core credit file, says Greg Wright, executive vice president and chief product officer for Experian Consumer Information Services.
Equifax plans to add BNPL data to regular credit reports, and TransUnion plans to separate BNPL data from other core credit information in credit reports.
While the bureaus will have access to your BNPL data, it will be up to a potential lender to dig deeper if they want more information about your payment history on BNPL loans.
So, What Impact Will BNPL Have on My Credit Report?
Currently, the only ways that BNPL data affects scores are negative.
For example, if you are delinquent in paying your account and the BNPL lender turns your account over to collections, that collections account will show up on your credit report. Delinquencies can have a negative impact on your credit score.
In addition, some BNPL lenders will do a hard credit inquiry when you apply, and others do a soft inquiry. Too many hard inquiries can also have a negative effect on your credit score.
For consumers, making on-time payments is positive. That’s because payment history is the most important factor in determining your credit score. However, when BNPL payments aren’t included in credit score models, consumers may be paying their BNPL loans on time but not getting the same effect they would get from paying other loans or credit products on time.
As credit bureaus move towards incorporating BNPL data into consumer credit profiles, consumer groups like the Consumer Financial Protection Bureau are hopeful they will find a way to include this information in credit scores and reports.
“As Point-Of-Sale (POS) installment loans have become more popular, there’s an opportunity for TransUnion to help POS borrowers build a credit history that may make them more attractive to lenders in the future,” reports TransUnion in a statement. “As a first step, TransUnion and POS providers are working together to include this information on credit reports.”
Because different bureaus will be handling BNPL data in different ways, it’s especially important to monitor all three of your credit reports, rather than keeping track of just one or two. By tracking all three reports, you can get a better handle on how your Buy Now Pay Later loans are being included in your credit profile and affecting your credit overall.
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