Buy Now, Pay Later Loans Can Now Appear on Your Credit Report

Buy now, pay later (BNPL) loans can now show up on your credit report.

On Tuesday, BNPL lender Affirm began sending information on all its short-term lending products — including its increasingly popular “Pay in 4” BNPL loan — to the credit bureau Experian. That same day, TransUnion, another major credit bureau, said it is also receiving BNPL payment information from lenders.

Experian says the move is geared toward “enhancing transparency” in the BNPL market, which has thus far operated largely outside the typical credit and lending ecosystem by not showing up on credit reports.

The changes will not immediately affect credit scores, the bureaus said, but new credit scoring models are currently being developed to factor in BNPL payments.

“At this time, the data is only visible to consumers,” TransUnion stated, noting that “over time, BNPL data will likely be incorporated into credit scores and models.”

In March 2024, Experian made a similar move by incorporating Apple Pay Later data into its credit reports.

With the credit bureaus now tracking these products more closely, BNPL could soon affect your credit score.

“The big three credit bureaus have been pushing BNPL providers to supply this data,” says Chi Chi Wu, a senior attorney at the nonprofit National Consumer Law Center, or NCLC. “Their stock and trade is data, and the more data they can get, the better.”

BNPL and your credit score

BNPL lending took off in 2019 and became entrenched during the pandemic era. Lenders like Affirm, Klarna and PayPal offer shoppers a simple way to break down their expenses into installment payments at checkout — sometimes with interest rates as little as 0%.

BNPL companies earn their revenue in part by charging the retailer a fee to offer the installment-payment service at checkout — which then boosts that retailer's sales. BNPL lenders may also charge interest to shoppers.

A major draw to BNPL is that lenders often offer almost-instant approval, no late fees and interest rates lower than credit cards. Up until now, BNPL purchases were largely left off of credit reports and have not affected credit scores in the same way as a standard loan or credit card purchase.

Critics of BNPL within the lending industry have said that this exclusion gives them an incomplete picture of the financial health of a borrower because the borrower could potentially have several BNPL loans out without the lender knowing.

That’s now starting to change.

According to TransUnion, nearly 130 million U.S. consumers have taken out a BNPL loan in the past year. Depending on the BNPL lender, the loan can show up on Experian and TransUnion credit reports.

The bureaus say that BNPL loans are not directly incorporated into the calculations of your credit score for the time being but have strongly signaled that BNPL will be a part of future credit score models. When that time comes, given the scale of BNPL usage, credit scores could be greatly affected for better or worse.

The credit bureaus say they intend to pass along on-time BNPL payment data (and not information about missed or late payments) for use in credit scoring, but that may not shield many borrowers from potential negative credit effects of BNPL loans.

Payment history is a major part of your credit score, but it’s not the whole story. The total amount of debt, length of credit history, new credit accounts, and the variety of the types of loans are the other key factors.

Wu says the entire credit reporting system is built upon monthly payments. BNPL loans, which are typically paid off quickly with bi-weekly payments, don’t easily fit into that system. And it’s not clear how injecting BNPL into people’s credit scores will help them.

"Experian is committed to driving transparency in the BNPL industry and doing so in a way that does not negatively impact consumer credit scores," a company spokesperson said in a statement to Money.

Most BNPL borrowers already struggle with credit

A federal report from the Consumer Financial Protection Bureau, or CFPB, found that BNPL users are often financially vulnerable, mostly falling into “subprime” or “deep subprime” credit categories, or in other words have credit scores between 300 and 619. (People with credit scores this low are generally not eligible for regular personal loans.)

The CFPB report says that typical BNPL borrowers are taking out more than nine such loans per year, and 63% of them had multiple loans out at the same time. The average BNPL loan amount is about $140.

The credit bureaus say that sharing BNPL data could help these financially vulnerable Americans, especially people who are “credit invisible,” by helping them build up their credit files.

"Credit invisible" is a term used to describe some 25 million Americans — who are often low-income earners and people of color — who have no credit history whatsoever. Without a credit file, they struggle to get basic financial products like credit cards, mortgages and other financing. According to the CFPB report, however, only about 4% of BNPL users are credit invisible. Wu says this suggests that the vast majority of BNPL users already have credit files.

In general, Wu recommends wariness with using BNPL altogether. While people should generally avoid purchases they can’t buy outright, Wu says that using a credit card may be a better option.

“If I'm advising a consumer whether you pay for something with a credit card or BNPL, I'm telling them you use your credit card because of your federal protections,” she says.

For instance, you have the right to dispute credit card charges — but not BNPL ones.

"The real winner in all of this," Wu says, "is the credit bureaus.”

More from Money:

The Hidden Cost of Using Everyday Bills Like Netflix and Rent to Boost Your Credit Score

9 Million Student Loan Borrowers Will Soon Take a 'Significant' Credit Score Hit

What Is 'Good' Debt and How Can It Improve Your Finances?