The rising popularity of Buy Now, Pay Later (BNPL) loans has directed the attention of credit bureaus to its possible positive impacts on consumers’ credit scores. Therefore, these beneficial loans will soon appear on consumers’ credit reports for inculcating responsible shopping behavior while allowing them to enjoy certain benefits that accompany credit scores.
What Are Buy Now, Pay Later Loans?
Buy Now, Pay Later, or BNPL loans are mainly less to no-interest loans offered to consumers as regular installments for debt payment. However, these loans are primarily for short-term financial help instead of long-term services.
BNPLs don’t require loan approval and are also regarded as point-of-sale loans, as the purchase is divided into installments at the point of purchase. These services are ideal for consumers with minimal credit history, as traditional credit card options require approval based on this history, whereas BNPL loans don’t.
Why Wasn’t BNPL Data A Part Of The Credit Report Yet?
BNPL loan activity isn’t aligned with the current credit system that works with long-term loans. In contrast, BNPL installments are so feasible for consumers that they take on multiple loans a year, making it riskier for consumer credit reports due to potential penalties. BNPL loans have shifted their stance in the eyes of experts who believe these loans could aid consumers in improving their credit scores if carried out responsibly with timely payments.
How Long Will BNPL Data Take To Become Part Of Credit Reports?
As discussed, the current credit system isn’t optimized with BNPL loans and can cause a negative impact on consumers’ credit reports if it’s hastily added to the system. Therefore, a gradual change is being planned with precise tweaks in the existing system to adjust BNPL loans effectively. Hence, the process will take a while, and consumers won’t see instant or random announcements anywhere.
How Do The Three Credit Bureaus Plan To Execute The Changes?
BNPL data will become part of all three credit bureaus in the near future. However, the execution will differ. Here’s the information that’s been made available for consumers till now. TransUnion’s BNPL credit service report is introduced as Point of Sale Solutions, appearing as a separate area on the credit report from the traditional credit service data.
Experian’s self-devised product, The Buy Now Pay Later Bureau, which made its debut in 2022, will have a separate storage of BNPL data than the core credit. Equifax plans on incorporating BNPL data in conventional credit reports in the long term.
Will These Plans Be Beneficial For Consumers?
When paid on time, BNPL credit reports can work exceedingly well in improving consumer credit scores. Therefore, consumers will be required to make responsible decisions to decrease the potential risk of negative credit scores and the stress that BNPL loans can cause financially.
BNPL data and activity reporting with traditional credit reporting might work well for consumers if they responsibly make financial decisions. However, it could severely backfire. Moreover, a non-uniform system might also introduce its fair share of hurdles in executing BNPL reporting. Therefore, it might be a while before this change completely takes over.