EQUIFAX HAS OFFICIALLY enabled Buy Now, Pay Later (BNPL) providers to report popular “pay-in-four” loans. As the first consumer reporting agency to formalize a process for including BNPL on traditional credit reports, Equifax sees this as an important step in expanding access to credit. An Equifax study of anonymized consumer data from a BNPL provider shows that individuals who pay their BNPL loans on time could potentially increase their credit score - helping consumers to both build and rebuild credit.
Equifax U.S. Information Solutions (USIS) Chief Product Officer, Mark Luber, answers a few questions about what this step means for consumers.
If Equifax is enabling BNPL providers to report “pay-in-four” loans as of February 28, 2022, does this mean that consumers can expect to see all of their BNPL activity show up on their credit report immediately?
Luber: No. We’re making a new “business industry code” available for BNPL providers and encouraging them to report into Equifax. BNPL is a rapidly evolving market, and this is really the starting point for something that we believe will be of tremendous benefit for consumers who pay their BNPL loans on time.
While tradeline volume is currently very low – with many pay-in-four BNPL installment providers not reporting to the bureaus at this time – we expect BNPL contribution to slowly ramp up. We are encouraging qualified BNPL providers to report consistently, while also onboarding new furnishers that meet our standards of acceptance. Consumers who have a BNPL tradeline that is reported to Equifax will see it reflected in their Equifax consumer credit file as part of either the “Revolving Accounts” or “Installment Accounts” sections, depending on how that BNPL provider reports the tradelines.
At Equifax, we are committed to helping consumers live their financial best, and in our conversations with BNPL providers, we’ve found that they really resonate with this mission.
What’s a “business industry code,” and how can a consumer see it?
Luber: This is the way we classify the industry in which each Equifax business customer functions. The new industry code will classify BNPL tradelines, including payment history. This will give Equifax customers and scoring partners the ability to view and decide how to incorporate the information into their decisioning to potentially open up new mainstream financial services opportunities to more consumers.
If a BNPL provider reports, will lenders be able to see a person’s full loan history with that provider?
Luber: When a BNPL provider begins reporting, we request that they provide six months of history.
How will BNPL tradelines appear on a consumer’s credit report?
Luber: BNPL tradelines must adhere to the Metro 2 guidelines for product as well as Equifax standards for data contribution to our core consumer database (ACRO), and may be reported as an installment loan or a revolving line of credit.
How a BNPL product is constructed is up to the BNPL provider. Typically, with the revolving line of credit model, a consumer is issued a credit limit that they can use to make multiple individual transactions, paying each back over six weeks in a pay-in-four model. The individual transactions and associated payments are rolled up into one account and reported as one revolving line of credit tradeline. In that way, it doesn’t appear that a consumer is opening multiple accounts as they are making additional purchases.
While there are some BNPL companies looking at reporting as installments, Equifax is continuing to conduct several analyses to better understand the impact of incorporating BNPL trades in different ways and what effect that has on consumers. Because BNPL reporting is still a relatively new concept, we are actively working with BNPL providers to obtain additional data to help inform our approach as the industry continues to evolve.
Will any BNPL reporting be immediately available in credit scores?
Luber: We’ve made this change in the last 90 days. Current versions of most credit scores were created prior to the announcement and availability of our new BNPL industry code. It will not be a specific factor in attributes/scores until new versions of those scores/attributes are created.
What should a consumer expect in terms of impact? Will BNPL information help them establish additional credit history?
Luber: 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. 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 reporting presents an opportunity to demonstrate responsible behavior and build or rebuild credit.
That said, how BNPL impacts a person’s credit report and score depends on their specific payment behavior and other factors within their credit file, and consumers who haven’t paid their BNPL loans on-time won’t see the same benefits. As with any tradeline reporting, BNPL can impact scores both positively and negatively, depending on the specific payment behavior and other factors within a consumer’s credit file, such as the consumer’s current credit mix, payment history, depth and breadth of data and recency.
Enabling access to credit is essential to helping consumers move up the financial ladder, so our goal here is to help consumers build their personal credit profiles and in turn, help our customers better assess risk with a fuller picture of more consumers.
For more information on BNPL reporting from Equifax, learn more at the article here.