Credit Risk

Expand Credit Access with Buy Now, Pay Later

Expand Credit Access with Buy Now, Pay Later

February 14, 2022 | Sharla Godbehere

As Buy Now, Pay Later (BNPL) transaction volumes continued to rise through the holiday season, one of the most asked questions is, how does this financing method impact consumers and their credit score? But before diving in, it is important to understand the demographics of BNPL users and reasons for it’s increasing popularity. In this article, we will explore which demographic groups are the largest Buy Now, Pay Later users and how BNPL can help them improve their credit score. 

The “young” and “thin” credit files

More and more consumers are adapting to Buy Now, Pay Later, with 30% of consumers aged 41- 55 having tried a Buy Now, Pay Later service in 2021.¹ Moreover, a large population of BNPL users are “thin” and “young” credit file consumers. These consumers fall under the Gen Z and Millennial age group. In 2021, 41% of millennials and 36% of Gen Z have used a BNPL service.¹ As I mentioned in my previous blog, “What to know about Buy Now, Pay Later,” many young, tech-savvy consumers are using this payment service to avoid credit and interest while assisting with budgeting. These individuals can be students or young adults starting their credit journey.

Another large group of consumers that use BNPL are the 62 million thin credit file consumers that may not have access to credit or consumers who have made late payments in the past and need to rebuild their credit file.² This demographic is significant, with one in five adults in the U.S. lacking the credit history needed to establish a credit score.³ Buy Now, Pay Later helps these consumers access convenient, affordable alternative financing options for their online or in-store purchases, often with the service involving interest-free installment payments offered at checkout. 

How BNPL can help

In a recent Equifax study, consumer data from a BNPL provider showed that individuals who pay their BNPL loans on time could potentially increase their FICO® Score. This can support consumers in building and rebuilding credit. BNPL can help new-to-credit consumers build their credit profiles and consumers with late payments rebuild their credit.

During the study, individuals with either a “thin” credit file or a “young” credit file saw an average FICO Score increase of 21 points. Also, thanks to on-time BNPL tradelines to their credit file, consumers who had previous late payments on their credit file even experienced an average FICO Score increase of 13 points.⁴

This study shows that the inclusion of on-time payments of BNPL loans in credit reporting may increase credit scores. Equifax will continue BNPL consumer impact studies as well as efforts to improve BNPL tradeline reporting in our ongoing effort to help lenders expand access to credit.

To learn more about BNPL, download our ebook, “A not-so beginner’s guide to Buy Now, Pay Later” and watch a recording of our February 10 Market Pulse webinar on the topic.  

And, for more on Equifax’s study of consumer BNPL data, read our press release, “Equifax First to Formalize Inclusion of 'Buy Now, Pay Later' Payment Information in Consumer Credit Reports.” 

1 Buy now, pay later adoption by generation SOURCE: CORNERSTONE ADVISORS

2. Equifax internal data

3. 22% of Americans Don't Have a Credit Score -- Here's Why

4. Equifax Press release

Sharla Godbehere

Sharla Godbehere

FinTech Leader

Sharla leads the team focused exclusively on the rapidly evolving FinTech industry. She connects the power of data, technology, and analytics with today's future-designing companies to expedite responsible growth in lending. Sharla assists FinTechs and alternative lenders in leveraging Equifax’s unique data to make bet[...]