Equifax Adding BNPL Plans to Credit Reports

This year, Equifax Inc. will start recording Buy Now, Pay Later (BNPL) installment plans on credit reports to give lenders a more complete picture of consumers’ financial commitments. In recent years, Buy Now, Pay Later plans have increased in the U.S. as an innovative form of consumer credit, but repayment information has not shown up on credit reports. This has created a blind spot for lenders that use reports to determine a consumer’s ability to repay as well as a missed opportunity for consumers who might see their credit scores bolstered with successful and timely repayments.

“Responsible lending benefits from a complete picture of a person’s financial obligations,” said Mark Begor, Equifax Chief Executive, according to the Wall Street Journal.

BNPL payment plans are typically small, but can add up if consumers use them frequently. Many are “pay-in-4” plans, which are used for small-ticket items like clothing, and require a quarter of the total upfront and three more payments billed every two weeks.

Afterpay Ltd. saw $9.8 billion in pay-in-4 plans from June 2020 to June 2021, more than double the previous year. Klarna Bank AB saw $3.2 billion in mostly pay-in-4 plans during the first six months of 2021, up from $722 million during the half of 2020.

Neither Afterpay nor Klarna currently report pay-in-4 plans to credit reporting agencies. The plans are especially popular among consumers with thin or nonexistent credit histories, or those who don’t qualify for traditional credit. Equifax stated that these consumers should get a boost from including these plans in their credit scores if they pay their bills on time.

Alternatively, the consistent opening and closing of accounts with BNPL plans can drag down credit scores. BNPL companies want to ensure that customers who pay their bills on time are not penalized for regular use of the short-term payment plans.

Equifax will begin to add pay-in-4 plans to credit reports at the end of February, and said that positive and negative information, as well as on-time payments and defaults will be in credit reports and reflected in credit scores.