We recently came across this article about the costs of BNPL plans, which inspired us to do some further research on BNPL providers and reporting to the major credit bureaus. Reporting is a cloudy area in regards to BNPL, so we decided to examine developments in regards to credit scoring at both the credit bureaus and the vendors.
Developments at the Credit Bureaus
Experian launched the “The Buy Now Pay Later Bureau” in Spring of this year. The product collects data from vendors in order to build a risk assessment, but the data is kept separate from traditional credit scoring models. Similarly, TransUnion is keeping data separate from existing scores and customers can opt-in to receive data as a supplement to existing models. Equifax is collecting BNPL information through a new industry code and is allowing its customers to decide if they want to include the loans into core credit score calculations.
What do the vendors say?
According to their website, Affirm reports some of its loans to Experian and may report to the other bureaus in the future. Late and partial payments may indeed hurt credit scores and limit the possibilities of originating loans with Affirm.
It is still unclear if PayPal Pay in 4 reports payment history to the bureaus.
Klarna’s terms of service states, “We may report information about your account to credit bureaus. Late payments, missed payments, or other defaults on your account may be reflected in your credit bureau report.”
Zip’s terms of service state the following: “We may report information about this Agreement to credit bureaus. Late payments, missed payments, or other defaults on this Agreement may be reflected in your credit report.”
Afterpay states that they do not report BNPL payment activity to the credit bureaus.
Sezzle only reports payment activity if users are enrolled in its credit-reporting product called Sezzle Up, but does not report activity for its standard product.
As you can see, reporting is still unclear for most BNPL providers and will likely require a nudge from regulators to develop standardized practices. We will continue to monitor this fast-paced industry for developments.
Overview by Ben Danner, Research Analyst at Mercator Advisory Group.