Equifax To Add More ‘Buy Now, Pay Later’ Plans To Credit Reports

Equifax will start recording ‘Buy Now Pay Later‘ instalment plans that allow buyers to pay off their purchases with monthly installments.

Starting early next year, companies such as the credit reporting bureau Equifax Inc. plans to start including instalment plans in their credit reports; Mostly ‘Pay-in-4’ instalment loans that allow shoppers to pay off their debts more quickly, instead of having to pay off the full amount of the debt at one time.

The reason for the change is that, in the first place, there is evidence that some people are paying off their purchases in these plans much faster than they are paying off their loans. People who may not necessarily have the money to pay off the full amount in one time, are able to put off the payments over a period of time.

Buy now, pay later is an emerging credit option primarily offered by e-commerce websites. Under this scheme, the buyer is allotted a credit limit within a certain limit that can be used to purchase items on the e-commerce website within certain parameters. This amount will be paid in EMIs of three, six, nine or twelve months with a nominal interest rate. Based on the customer’s eligibility, they can even get ‘No Cost EMIs’ on the buy now pay later limit for a limited number of months, with no additional costs involved. These “buy now, pay later” plans are designed to allow shoppers to pay off their purchases with monthly payments. Despite this being a widely-prevalent payment method with e-commerce websites, retailers have increasingly adapted to this payment method to increase sales and revenue.

Most people just use their credit cards as a viable option to get instant credit. But the ‘buy now, pay later’ plan allows them to make more affordable payments over time as opposed to making larger payments all at once.

“Pay-in-4” is a financial product offered by many major retailers. Like a traditional installment plan, it offers an equal monthly amount to be paid to the creditor in a particular period of time. Unlike traditional plans, the instalments are calculated based on the outstanding balance rather than a fixed payment plan.

The ‘buy now pay later’ credit plan is not typically considered as an installment or revolving credit plan, but it can be added to someone’s credit report, which means it could affect their credit score.

In the past, the credit reporting agencies have been working on ways to improve the ‘lag time’ between a consumer opening an account and the reporting agencies including that information in a person’s credit report. The credit reporting agencies typically wait until a consumer has made two or more installment payments before reporting that to the credit bureaus.

The buy now pay later plans are entered in the same section as the personal loan. Thus, the credit scores of the consumers will show that they are making installment plans.

TransUnion doesn’t require its lenders to report the ‘buy now pay later’ plans to the credit reporting agencies. So do Klarna and Afterpay, two of the biggest BNPL players in the US who choose not to report BNPL loans in their credit history.

The primary concern here is the frequency of opening and closing of credit accounts, or “churning,” can cause a “payment history” score to fluctuate. Many people report these accounts as ‘open’ when they’ve been inactive for months.

Equifax will add the pay-in-4 data to credit reports beginning at the end of February. The company is also updating its reporting process on how customers pay by giving them the ability to view their credit score and credit utilization, and then make changes to the score or the utilization rate to try and improve it.

https://www.wsj.com/articles/equifax-to-add-more-buy-now-pay-later-plans-to-credit-reports-11639915203

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