- The three major credit bureaus will start collecting data on "buy now, pay later" loans.
- Experian will be the only one to count these loans toward — or against — credit scores for now.
- The federal government is investigating BNPL services over too much debt for shoppers and harvesting data.
Accepting the enticing "buy now, pay later" offer you see while shopping online could start counting toward — or against — your credit score.
That's because the three major US credit bureaus, TransUnion, Equifax, and Experian, will be collecting data on these purchases, according to their press releases. If you make payments on time, it could boost your credit score; if not, it could hurt it, which could in turn affect your ability to obtain a mortgage, credit card, or other loan.
BNPL loans such as those offered by Affirm, Afterpay, Klarna, and PayPal's "Pay 4" option have been growing increasingly popular over the past few years, especially among Gen Z buyers. The services essentially do what they say, which is offer buyers short-term, often interest-free loans to pay for purchases. Shoppers sign up for a scheduled repayment plan and pay back the debt in installments.
The rise of BNPL led to a pandemic-era spending and debt boom, prompting the the Consumer Financial Protection Bureau to open an inquiry into BNPL firms in December, citing concerns around debt growth, consumer protection laws, and data harvesting.
The three bureaus are taking different approaches when it comes to incorporating the relatively new shopping 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 the calculation of your core credit score. TransUnion and Equifax will start collecting information about an individual's outstanding BNPL loans, but won't factor it into a credit report. Both TransUnion and Equifax, however, allowed for the possibility that they might do so in the future.
"To protect consumer credit scores from immediate negative impact, detailed information related to each BNPL transaction will be stored separately from Experian's core credit bureau data," Experian said in a press release.
Experts are cautious about buy now, pay later and its impact on credit scores
TransUnion does plan to use BNPL loans to calculate consumers' credit scores in the future, but it will likely take credit bureaus and reporting models a few years to adjust, Liz Pagel, Senior Vice President at TransUnion, told CNBC last week, and Experian's Chief Product Officer, Greg Wright, said the same thing.
For now, BNPL information will be separate from credit information in those two bureaus so that it doesn't negatively impact credit scores — but they won't be improving them either. Other than storing the data, Experian and TransUnion have not said what else they plan to do with it.
Equifax, in contrast, will run bi-weekly reporting on BNPL loans.
The bureau will account for BNPL lines of credit, and give the firms that generate scores the opportunity to view and decide how to incorporate the 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 the credit bureaus should have investigated the impact of BNPL sooner, due to the risk of a possible credit bubble. Credit bubbles describe a surge in forms of credit, such as loans.
"The three big agencies that follow consumer debt have yet to really get their hands around this as it's a relatively new concept," Sterne said. "They've been diligent post-financial crisis, but I guess nothing has changed. They should have been more aware of this."
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