Buy now, pay later loans to be formally included in Equifax credit reports

Equifax is the first major credit bureau to formalize a standard process for reporting BNPL payments. Here's how the move may impact your personal finances. (iStock)

Starting in 2022, Equifax will be the first credit reporting company to standardize a process for including buy now, pay later (BNPL) payment information when calculating credit scores. The announcement comes after an Equifax study found that including BNPL in credit reporting would help the majority of consumers raise their FICO score by 13 points, on average.

"We are committed to helping people live their financial best, and recognize the role that BNPL services can play in helping people build stronger financial profiles," said Mark Luber, chief product officer for U.S. Information Solutions at Equifax.

This can help borrowers who are current on their BNPL payment plans build credit. However, credit reporting may not be beneficial to all consumers. Borrowers who are behind on their BNPL payments could experience a negative impact to their credit scores.

Keep reading to learn how buy now, pay later may impact your credit score, including alternatives to BNPL as well as your options for paying off BNPL debt like debt consolidation loans. You can visit Credible to compare interest rates across multiple lenders for free without impacting your credit score.

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How BNPL debt may impact your credit score

Buy now, pay later plans allow shoppers to break online purchases into multiple interest-free payments at checkout — often, without a hard credit check. This financing option has been popular among consumers this holiday shopping season, with about 1 in 6 shoppers planning to use a BNPL service such as Affirm, Afterpay and Klarna.

Since Equifax will consider on-time BNPL payments starting in 2022, this may potentially have negative credit implications. Holiday shoppers who utilized BNPL to finance purchases may see their credit scores rise or drop in the new year, depending on their repayment status.

The Equifax study found that BNPL users had 5.5 months of repayment history reported, on average. This can show a consistent streak of on-time payments for borrowers who are current on their BNPL installment agreements, but it can potentially hurt the credit scores of borrowers who have missed monthly payments.

If you're unable to pay off debt you've accumulated through BNPL services, you might consider utilizing a debt consolidation loan. This type of personal loan is used to pay off higher-interest debt in low monthly payments at a fixed interest rate.

Visit Credible to browse debt consolidation loan terms and use a personal loan calculator to estimate your monthly payments.

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3 alternatives to using BNPL financing

Consumers flock to buy now, pay later because it may offer a way to finance purchases online with no credit check, but it often comes with late fees and down payment requirements. However, BNPL isn't your only option if you need cash to cover a large expense. Here are a few alternatives to using a BNPL service:

Paycheck advance. Apps like Chime, Dave and Earnin allow workers to borrow small amounts of money from their upcoming paychecks, often without interest or fees. This financing option is only available to employed borrowers whose paychecks are issued through Direct Deposit.
0% APR credit card offers. Some credit card companies offer zero-interest introductory periods for well-qualified borrowers who open new accounts. These offers typically last up to 18 months and are reserved for applicants with good credit. You can compare 0% APR credit cards for free on Credible.
Personal loans. These are unsecured cash loans that let you borrow a lump-sum of money that you repay over a set period of months without putting up an asset as collateral. Personal loans tend to come with low, fixed interest rates for well-qualified applicants, but they do require a credit check.

If you decide to borrow a personal loan, it's important to compare offers across multiple lenders while interest rates are near historic lows. You can start shopping for personal loan offers without impacting your credit score by getting prequalified on Credible's online loan marketplace.

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