BNPL Loans Set to Shape Credit Reporting and Financial Management

The integration of buy now, pay later (BNPL) loans into credit reporting systems is set to revolutionize the way consumers manage their finances. Until recently, this type of financing, which allows shoppers to spread out payments over several instalments, was not being reported to credit bureaus such as Equifax, Experian and TransUnion. However, this is changing, with Apple becoming the first major BNPL provider to start reporting all user account information to a credit reporting agency earlier this year. This move could have significant implications for consumers, as it will enable them to establish credit history and improve their credit scores, particularly those who are new to credit or considered “credit invisible”. While the BNPL industry is one of the fastest growing segments in consumer finance, its lack of reporting has raised concerns about the level of debt being accumulated. Once other BNPL providers follow Apple’s lead, it will provide a more complete picture of overall household debt levels. Credit scoring agencies such as FICO and VantageScore will also be able to incorporate BNPL data into their calculations, which could benefit lenders by providing a clearer view of a borrower’s creditworthiness. However, critics argue that BNPL loans encourage overspending, with almost a fifth of users falling behind on payments, potentially damaging their credit ratings. Additionally, because most BNPL loans have short terms, they could negatively impact the average age of a consumer’s credit history, which is a crucial factor in calculating credit scores. Nonetheless, the inclusion of BNPL loans in credit reporting systems could provide a valuable opportunity for financially excluded individuals to build credit histories. According to research by Bank of America Institute, almost half of households that use BNPL earn less than $50,000 per annum, while wealthier households are using it less frequently. Overall, the impact of BNPL loans on credit scores remains unclear, but as more lenders start reporting this data, a clearer picture will emerge. Consumers should be aware that repaying BNPL loans on time will reflect positively on their credit ratings, while failing to do so could harm their scores.