Last month, Equifax announced that it was incorporating buy now, pay later (BNPL) data in their credit files. Industry sibling Experien has already been adding at least some data to their files.
BNPL has risen in popularity due to its growing accessibility and lower cost in comparison to expensive credit cards. Typically available at the point of sale, both in-person and online – or point of sale (PoS), BNPL offers an installment loan-like program for consumers making larger purchases more accessible. Additionally, purchases via a BNPL provider can help consumers build a credit file potentially lowering interest rates in the future.
But like other types of credit, BNPL can add up over time – perhaps to a point where the consumer struggles to pay off accumulated debt.
GoCardless is a company that offers a similar service described as account-to-account payments that may be reoccurring charges. GoCardless is a global service. Siamac Rezaiezadeh, Director of Product Marketing at GoCardless, says that Equifax’s decision to add BNPL data is a good thing:
“I think Equifax’s move to include Buy Now, Pay Later (BNPL) payments within credit card reporting could lead to heightened awareness among consumers of how their spending can hurt their scores,” says Rezaiezadeh. “However, I think this awareness can only be a good thing, particularly if it encourages shoppers to shop responsibly, but also to keep a better handle on what they are spending across different BNPL providers. A recent study by GoCardless found that close to half (46%) of Americans say they find it difficult to keep track of how many buy-now-pay-later plans they have open.”
And there is the rub. BNPL can be great for consumers but if a user is extended credit from multiple BNPL providers it can be difficult to track – a similar problem some online lenders have experienced in the path with “stacking.”
Rezaiezadeh believes a better solution is a direct payment from your bank account – the service GoCardless provides. Rezaiezadeh claims that “typically around 10% of card payments will fail, but when consumers are paying directly from the bank account, this drops to around 2.5%. In a world where credit scores are impacted when a payment fails, this now matters.”
Either way, when consumers miss a payment whether is on a credit card, a loan, or now BNPL, it can impact credit scores and the cost of that credit. Perhaps the best option is to not take on any credit at all. But as we all know, that is not really an option.
