Your "buy now, pay later" purchases likely won't factor into your credit scores for now
More Americans than ever are using "buy now, pay later" programs to purchase everything from clothes to couches and even takeout, but now some of the biggest providers are pushing back on plans to include it in your credit score.
The short-term loans from providers like Affirm, Klarna and Afterpay split payments into smaller installments. But these loans have largely remained out of credit scores, which lenders use to determine a borrower's creditworthiness.
The three big U.S. credit bureaus — Experian, Equifax and TransUnion — announced earlier this year they would start including "buy now, pay later" loans in the calculation of credit scoring.
But for now Affirm is the only major BNPL provider currently reporting that data to the credit bureaus.
Officials with both Klarna and AfterPay are pumping the brakes over uncertainty about whether it will help or hurt consumers' scores, even if they're making on-time payments.
"There have been some challenges in integrating 'buy now, pay later' loans into the traditional credit reporting framework," Consumer Reports financial policy advocate Chuck Bell said. "And the reason is that these are often very short-term loans with a payback period of six weeks, and that creates some problems, because when you open multiple accounts in a relatively short period, typically your credit score goes down."
Afterpay and Klarna both say they will continue to hold off on supplying customer data to credit bureaus until score calculations are changed.
A spokesperson for Klarna told CBS News Philadelphia, "The U.S. credit reporting framework doesn't reflect how short-term BNPL products are used. We look forward to a system where these products can contribute positively to consumers' credit standing."
It comes as these types of loans are exploding in popularity, and many consumer advocates warn against taking on too many at once, especially for smaller purchases like groceries or takeout.
A new Bankrate survey reveals nearly half of "buy now, pay later" users say they have experienced at least one financial problem with these services. The most common: overspending (24%), missing a payment (16%), and difficulties with returns or refunds (14%).
Bell said many consumers are using "buy now, pay later" lending as credit cards, but he warns they don't carry the same protections, including your right to dispute a charge. That's something Bell said you should keep in mind if you use these services.
