‘Buy now, pay later’ plans could soon impact credit scores

• “Buy now, pay later” lender Affirm is now reporting all its short-term installment loans to the credit bureau Experian. As a result, these loans will soon appear on credit reports.
• Bankrate said its most recent survey found that 39% of Americans use buy now, pay later services.
• A FICO and Affirm simulated model showed 85% of those who used these services saw a credit score change of less than 10 points.

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“Buy now, pay later” options have made it easier for consumers, enabling them to purchase things they may want or require immediately, even without cash on hand, while avoiding penalties and interest rates associated with credit cards.

However, a new rule took effect on April 1 that could soon affect credit scores, for better or worse.

What’s changing?

Affirm, one of the nation’s biggest “buy now, pay later” lenders, will report all its short-term interest-free installment loans to the credit bureau Experian.

That means these loans will now appear on credit reports, much like mortgages and car loans. Before now, Affirm only reported its long-term interest-bearing loans.

How will this impact credit scores?

Experian said adding these short-term accounts to reports will not immediately impact credit scores, as traditional scoring models have not yet been updated to include this type of debt. However, they might be updated soon.

A recent joint study by FICO and Affirm found that 85% of “buy now, pay later” users saw score changes of fewer than 10 points by adding the accounts to their credit reports under a simulated model.

According to Bankrate’s 2024 “Buy Now, Pay Later” Survey, nearly 40% of Americans use these services, with particular popularity among younger individuals.

Is this change universal?

So far, Experian is the only credit reporting company that has added this type of loan to credit ratings, but others may soon follow suit.

TransUnion, for instance, has begun collecting data from two “buy now, pay later” providers. However, it has not disclosed which two or when this process commenced.