Could Your BNPL Debt Impact Your Credit Report? Here’s What You Need to Know

Buy Now, Pay Later (BNPL) loans are starting to appear on credit reports, but they do not affect your credit score yet. However, lenders can see your BNPL loans and may use them to assess your repayment capacity. 

What Is Changing With BNPL and Credit Reports?

BNPL services like Affirm, Afterpay, Klarna, and others offer short-term loans that let consumers make a purchase on credit and pay it off in small interest-free installments later. In recent years, they’ve exploded in popularity.

Until recently, BNPL transactions didn’t appear on credit reports and so they didn’t affect your creditworthiness. But policies are changing, at least at Experian, one of the three major credit bureaus.

“Affirm is reporting their BNPL loans to us,” said Rod Griffin, Senior Director of Public Education and Advocacy at Experian. The company is currently only showing BNPL loan data to the consumer and not to businesses due to a lack of sufficient information. Once more data is available, Experian will share the inquiry for the BNPL loan with the lender, but BNPL data will not affect credit scoring models, Griffin said. 

This means, the BNPL loans won’t directly factor into calculating your credit score for now, but a lender can still see that you’ve taken out multiple BNPL loans and consider that when assessing your repayment capacity.

Why BNPL Loans Need Monitoring

Recent reports show that lenders are concerned about how BNPL debt contributes to borrower risk, especially for younger consumers and those just beginning to build their credit history. 

Research from the Consumer Financial Protection Bureau (CFPB) found that borrowers under 25 had around 30% of their total debt through BNPL compared to nearly half (at 17%) for other borrowers. 

The study further showed that more than 60% of BNPL users had simultaneous loans and one-third had loans from several providers. Moreover, two-thirds of BNPL loans were used by consumers with lower credit scores, who may not be able to access favorable loan terms through traditional lending models. 

BNPL loans are being monitored to assess borrower risk now so financial institutions can make lending decisions based on your detailed borrowing history. 

When Can BNPL Loans Affect Credit Scores

According to current policies, simply taking out a BNPL loan doesn’t directly affect consumers’ credit scores, but there are situations where they can cause a negative impact. First, if you miss a BNPL payment, it may be sent to a collection agency, in which case it will appear on your credit report and hurt your score just like any other unpaid debt.

The second key consideration is that BNPL data might be used to calculate credit scores in the future as financial institutions work out how to report and use the data. 

The companies behind FICO scores and VantageScore, the methodologies used to calculate credit scores, are working on how BNPL history may be incorporated into the score calculation.

“We are actively in the process of obtaining and analyzing BNPL data to determine the potential impact that this could have on the FICO Score, including whether any changes resulting from the inclusion of BNPL data truly reflect a difference in consumer credit risk,” Ethan Dornhelm, FICO’s vice president of scores and predictive analytics, said in a CNBC interview. 

The Bottom Line

Even though BNPL loans currently do not affect credit scores directly, as financial institutions begin monitoring them on your credit report, BNPL data will affect lending decisions. So treat BNPL like any other debt. Pay it back on time and avoid loan stacking.

Keep an eye out for changes as companies begin incorporating BNPL data into score calculations. Consider speaking to a financial advisor for guidance on your specific situation, especially if you’re new to the world of credit building.