How does Buy Now, Pay Later Reporting Work?

ENABLING ACCESS TO CREDIT is essential to helping consumers access the financial tools and resources to help them get what they want and need in life. Equifax data shows that 76 million Americans may face challenges accessing credit because they are either “thin file” with four credit accounts or less; or “no file” or without traditional credit information. Helping more people build a credit history is one of the reasons why Equifax enabled Buy Now, Pay Later (BNPL) providers to report “pay-in-four” loans.

Typically, consumers can leverage BNPL products early on in their credit lifecycle, even if they may not qualify for other traditional types of credit. For consumers with young credit files – or those looking to rebuild their credit – using BNPL products from companies who report their data to the Nationwide Consumer Reporting Agencies (NCRAs) presents an opportunity to demonstrate responsible behavior and build or rebuild credit. 

Equifax put the infrastructure in place to support the reporting of BNPL "pay-in-four" loans in February 2022, with the introduction of what’s called a “business industry code.” We took this step to formalize the process for including BNPL on traditional consumer credit reports. A business industry code is visible to lenders and service providers and classifies the industry in which the organization reporting credit information to Equifax functions. 

In setting up the business industry code for BNPL, Equifax established that any BNPL information reported to the credit file must adhere to the Consumer Data Industry Association’s Metro 2® format for credit reporting, as well as Equifax standards for data contribution. It may be reported as an installment loan or a revolving line of credit – which depends on how that provider’s BNPL loans are constructed. 

Installment loans are a type of credit account which is repayable in installments, usually in set monthly amounts. When the loan is repaid in full, it’s considered closed. An example of a traditional installment account would be an auto loan or a student loan. The typical BNPL installment loan is a six-week loan with three biweekly payments, and a 25% down payment due at the point of sale.  

A revolving account is an account that gives a consumer a maximum credit limit. A credit card would be one of the most common examples of this. With this type of account, a balance can be carried over from month to month and may incur interest. Payment amounts are based on the outstanding balance amount. The typical BNPL revolving line of credit model is one that establishes a maximum credit limit for a consumer, in which the consumer can make multiple transactions up to their credit limit, paying each transaction in a pay-in-four six-week payment model.

We believe that consumers should get credit for paying bills on time and should be able to use their responsible BNPL behaviors as a stepping stone to other types of credit, like auto loans or mortgages. 

As pay-in-four BNPL loans are reported, Equifax acknowledges that both our customers and scoring models need time to adjust. Equifax has the capability to suppress - or “hold” -  BNPL pay-in-four tradelines from existing scoring models. We continue to take a data-driven approach to BNPL with a focus toward ensuring that the inclusion of BNPL data on consumer credit files has a predictable impact on credit scores. For more information visit Equifax.com/bnpl.