Beginning in 2022, Equifax will be the premier credit reporting company to standardize a process for including Buy Now, Pay Later (BNPL) payment information when calculating credit scores. The announcement comes after an Equifax study found that including BNPL in credit reports would help the majority of consumers increase their FICO score by 13 points, on average.
“We are committed to helping people get the best life from their finances and recognize the role BNPL services can play in helping people build stronger financial profiles,” said Mark Luber, product manager for corporate solutions. information in the United States at Equifax.
This can help borrowers who are up to date on their BNPL payment plans build up credit. However, credit reports may not be beneficial for all consumers. Borrowers late in their BNPL payments could be negatively impacted to their credit scores.
Read on for how to buy now, paying later can impact your credit score, including alternatives to BNPL as well as your options for paying off BNPL debt like debt consolidation loans. You can visit Credible to compare the interest rates of several lenders for free without affecting your credit score.
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How BNPL Debt Can Affect Your Credit Score
Buy Now, Pay Later plans allow shoppers to split online purchases into multiple interest-free payments at checkout, often without a credit check. This financing option has been popular with consumers this holiday shopping season, with around 1 in 6 shoppers planning to use a BNPL service such as Affirm, Afterpay, and Klarna.
Since Equifax will consider BNPL payments on time from 2022, this could potentially have negative credit implications. Vacation buyers who have used BNPL to finance their purchases may see their credit score go up or down in the New Year, depending on their repayment status.
The Equifax study found that BNPL users had an average of 5.5 months of repayment history. This can show a constant streak of on-time payments for borrowers who are up to date on their BNPL installment agreements, but it can potentially hurt the credit scores of borrowers who have missed their monthly payments.
If you are not able to repay the debts that you have accumulated through the services of BNPL, you may want to consider using a debt consolidation loan. This type of personal loan is used to pay off higher interest rate debts with low monthly payments at a fixed interest rate.
Visit Credible to browse debt consolidation loan terms and use a personal loan calculator to estimate your monthly payments.
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3 alternatives to BNPL financing
Consumers flock to buy now and pay later as this can provide a way to fund online purchases without a credit check, but often comes with late fees and down payment requirements. However, BNPL is not your only option if you need the cash to cover a large expense. Here are some alternatives to using a BNPL service:
- Payday advance. Apps like Chime, Dave, and Earnin allow workers to borrow small amounts of money on their next paychecks, often without interest or fees. This financing option is only available to salaried borrowers whose paycheques are issued by direct deposit.
- 0% APR credit card offers. Some credit card companies offer interest-free introductory periods to qualified borrowers who open new accounts. These offers generally last up to 18 months and are reserved for applicants with good credit. You can compare credit cards at 0% APR for free on Credible.
- Personal loans. These are unsecured cash loans that allow you to borrow a lump sum that you pay back over a specified period of months without putting up any asset as collateral. Personal loans tend to have low fixed interest rates for qualified applicants, but they do require a credit check.
If you decide to borrow a personal loan, it is important to compare the offers of several lenders while interest rates are near their historic lows. You can start buying personal loan deals without affecting your credit score by prequalifying yourself in Credible’s online loan market.
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