Personal Finance

Equifax Plans to Add BNPL Data to Credit Reports Next Year

Over the past several months, “buy now, pay later” services have seen a surge of interest from consumers and financial entities alike. These services often allow shoppers to buy the items upfront while paying off the purchase in four installments, with on-time payments resulting in no interest fees paid. Now, with the use of these platforms on the rise, credit bureaus are looking for ways to incorporate these loan plans into their reporting. In particular, starting in Q1 2022, Equifax plans to accept tradelines from buy now, pay later services.

While Equifax intends to have the first policy on adding these payments and loans, it seems that the other major bureaus aren’t far behind. According to the Wall Street Journal, fellow credit bureau TransUnion responded to the news by noting that it is working with BNPL companies to also enable reporting next year while Experian says a small number of buy now, pay later companies currently submit information for reporting but that they will be expanding this in the future. As for which BNPL services will be included, Afterpay, Klarna, and Affirm all told the outlet they are in discussions with the bureaus about potentially reporting plans.

As WSJ notes, the short-term and often recurring nature of BNPL plans could lead to dips in consumers’ credit scores. However, Equifax states that the reporting of these loan types “may increase credit scores.” The bureau cited data they collected that showed a majority of consumers saw increases to their credit scores when on-time BNPL tradelines were reported. On average, these rises amounted to 13 points. Additionally, those with “thin” or “young” credit files saw scores climb an average of 21 points when on-time payments were factored in.

In a statement about the change, Equifax’s chief product officer for U.S. Information Solutions Mark Luber said, “Equifax will be the first credit reporting agency to formalize a standard process for reporting BNPL tradelines for inclusion on traditional consumer credit reports. We are committed to helping people live their financial best, and recognize the role that BNPL services can play in helping people build stronger financial profiles.” Luber went on to note, “Most BNPL providers either bypass the credit check completely, or do a soft pull on credit files, which can be attractive to consumers. We are encouraging BNPL providers to report into Equifax as a powerful source of data. Those who use BNPL services that report can demonstrate reliable behavior and boost their credit profile.”

Given the exploding popularity of buy now, pay later platforms, it was only a matter of time before these loan products made their way to credit reporting. At the same time, while Equifax and others are now working to make that a reality, it’s still unclear exactly how such a plan will work — and how it will impact consumer scores. With the BNPL landscape evolving quickly, expect 2022 to be a busy year for the space as this and many other issues begin to be sorted out.