Blunt Talk on Buy Now, Pay Later
- Forget the sweet talk - Affirm's started reporting all pay-over-time loans, including Pay in 4, to the credit bureaus Experian and TransUnion.
- BNPL ain't much affecting borrowers' scores yet, but it's poised to make a big impact soon.
- It's time for BNPL users, often young folks, to sober up and face the consequences of both on-time payments and missed ones on their credit score.
Buy Now, Pay Later Impacts Credit Scores: Explanation of Advantages and Disadvantages
Buy Now, Pay Later (BNPL) has been shaking up credit with its low-or-no-interest payment plans for large purchases. And did you know? More than a third of Americans have already hopped on this bandwagon [citation needed].
But guess what? Those payments - good, funny or bad - have been evading the credit radar until now. While late payments on conventional loans or credit cards can hurt or help your score, BNPL has remained unscathed … until now.
Affirm's the lender paving the way here. They've announced that they'll start reporting all pay-over-time transactions to Experian and TransUnion, major credit bureaus. And that includes the original and outstanding balance, payment history, and loan terms for their popular Pay in 4 plan.
"Alright, let's get real," says Libor Michalek, president at Affirm, in a press release. "Having all loans featured in a consumer's financial profile will help protect and empower borrowers."
WTF is Affirm?
In case you're clueless, Affirm's one of the major BNPL lenders out there. They offer interest rates ranging from 0 to 36%. It's pretty simple to qualify for Affirm, making it a popular choice for those with poor credit or tight wallets.
The Pay in 4 plan is Affirm's version of BNPL. For purchases ranging from $50 to over $1,000, you can split the cost into four payments over time with two weeks between each one. No interest and no fees are charged, and there's zero credit hit to apply.
Affirm already reports monthly payments on longer-term loans. But now, Pay in 4 - which was previously listed as an exception that wouldn't affect your credit score - is joining the party.
Got a Question? Let Me Tell You About a Credit Bureau
Experian and TransUnion are two of the three major credit bureaus In charge of dragging all your debt drama, good or bad, into one report. This is your credit report we're talking about. The bureaus share this data with credit-scoring companies like FICO and VantageScore, whetting their appetite for the three-digit number that decides your creditworthiness.
Starting April 1, 2025, Affirm loan data will begin to appear on your Experian credit report. Your Affirm activity will be viewable to you by creating a free Experian membership. Your TransUnion credit report will follow suit starting May 1, 2025.
"Bringing buy now, pay later activity out of the shadows is essential for helping consumers build their credit," says Scott Brown, group president, financial services of Experian North America, in a press release.
"Millions of consumers use Affirm's pay-over-time financing, and they deserve to reap the credit benefits," says Steve Chaouki, president, U.S.Markets and Consumer Interactive of TransUnion, in a press release.
What's the Score with the Score?
Historically, BNPL has had minimal impact on borrowers' scores [citation needed]. Most BNPL plans, like Affirm's Pay in 4, usually only request a soft credit inquiry for approval, different from conventional applications that often tank your score with hard credit checks.
Late payments or defaults on BNPL plans might be reported to the bureaus and hurt your credit score. But responsible BNPL use could help build your credit score if you've been struggling with a poor-or-no-credit history.
Who's Playing the BNPL Game?
Binge-watching Netflix and ordering furniture on the side might not be so innocent, huh? Nearly half of millennials and Gen Zers have used BNPL [citation needed]. It seems like a lifeline for folks who don't want to fork over a chunk of change all at once or can't qualify for traditional credit.
Surprisingly, the use of BNPL is fairly consistent across income levels, and it's making a splash in the payment world. Keep in mind that the flip side is also true - irresponsible use could leave a black mark on your credit report.
Remember, building up good credit is crucial for getting approved for future lines of credit, housing, better loan terms, and more.
Wrap Up
Get ready to face the music, because the days of BNPL flying under the credit radar are numbered. Affirm's announcement to start reporting all pay-over-time activity, including Pay in 4, to Experian and TransUnion is paving the way for BNPL users' payment history to become a part of their creditworthiness.
Don't overlook these changes - keep your eyes on your credit reports to catch any errors and be ready for potential scoring shifts. Stay tuned for more updates as we explore the world of evolving credit scoring practices.
- Affirm, a major Buy Now, Pay Later (BNPL) lender, has announced that it will start reporting all pay-over-time transactions, including the original and outstanding balance, payment history, and loan terms for their Pay in 4 plan, to Experian and TransUnion, the three major credit bureaus.
- As a result, BNPL users, particularly millennials who are keen on BNPL, mayface significant consequences on their creditworthiness, as late payments on BNPL plans could now hurt their credit scores.
- For businesses in the finance, lifestyle, and technology sectors, this development could reshape consumer behavior and encourage more responsible use of BNPL services, as their creditworthiness becomes more closely tied to their BNPL payment history.
- Furthermore, millennials and other BNPL users who maintain a good payment record on their BNPL loans can potentially improve their credit scores, making them more attractive to potential lenders in the future.
