Major change to buy now, pay later from TODAY – how it could affect your finances
BUY now, pay later purchases are appearing on peoples’ credit reports with a major agency from today (August 1, 2022).
TransUnion, one of the UK’s three major credit reference agencies, said lenders will be able to see how many buy now, pay later accounts somebody has and how they manage their payments.
BNPL is a type of finance that lets you buy things now and pay for them at a later date, usually within 30 days, interest-free.
Millions of shoppers use BNPL companies like Klarna, Laybuy and Clearpay.
And some big brands are getting into the space, with Amazon starting a BNPL scheme and Apple and Zopa launching split payment options.
An estimated 8million adults in the UK owe money on BNPL, according to reference agency Credit Karma.
Read more on BNPL
TransUnion said that the inclusion of BNPL payments on credit reports will have no “immediate effect” on credit scores.
But the transactions will now appear on your credit history, meaning lenders can see when you use BNPL, how often and any missed repayments.
A spokesperson that while credit scores aren’t currently affected, they could be in the future.
“If so, missing a payment could have a negative impact, as with any other finance agreement,” they said.
“Including buy now, pay later data in credit reports will help people to better manage their finances and ensure payment behavior on their buy now, pay later agreements is visible,” said managing director of consumer interactive, Kelli Fielding.
The Sun asked TransUnion when people might see their credit scores impacted by BNPL payments, but it could not provide a time as to when this might happen, saying it will depend on when buy now, pay later companies provide the data.
“Whilst this has already begun, more and more companies are likely to start contributing information when they are ready,” the spokesperson said.
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When you use BNPL, it will be recorded on your TransUnion credit report and will be visible to other lenders.
TransUnion said that BNPL finance checks won’t be shown to lenders in the same way as traditional hard searches that are used for things like mortgages, credit cards and loans.
They also said that they won’t be the same as soft searches, often used for quotations and eligibility checks before credit is provided.
Instead, TransUnion has created a new search type that will leave a footprint that is especially for buy now, pay later finance.
It will be up to individual finance providers to decide how they use these new checks in lending decisions.
Remember, missed repayments can still lead to the BNPL company calling in debt collectors – if you’re having trouble paying to speak to the firm.
Is it just TransUnion that lists BNPL purchases on credit files?
The other two main credit reference agencies, Experian and Equifax, have also said they will list BNPL purchases on credit files.
Experian told The Sun that they are working with BNPL providers to include BNPL payments in Experian credit reports later this year.
And Equifax previously said that it “fully intends” to start including these details in reports.
The Sun asked Equifax where it is at with these plans.
Equifax includes BNPL payments on credit scores for US customers.
Which BNPL firms share your data with credit reference agencies?
The Financial Conduct Authority does not currently have any rules that force BNPL firms to share customer purchases with credit reference agencies.
And so whether your BNPL purchases appear on your credit report will depend on whether the company you made the purchase with is sharing information with TransUnion or other agencies.
The Sun reached out to popular BNPL companies Klarna, Laybuy and Clearpay, to see if they would be sharing data with TransUnion.
Laybuy told The Sun that while they always work with credit reference agencies and conduct credit checks on all customers, they do not share data with TransUnion at the moment.
They do however, with Experian and Credit Kudos.
Klarna told The Sun that it began reporting UK consumer purchases paid on time, late payments and unpaid purchases for Pay in 30 and Pay in 3 orders made on or after June 1, 2022 to both Experian and TransUnion.
“As part of Klarna’s long-standing commitment to its consumers’ financial wellbeing, this will give the financial industry greater visibility on UK shoppers’ use of Klarna’s BNPL products,” a spokesperson for Klarna told The Sun.
They said this will help to improve affordability assessments, and means Klarna consumers who make payments on time can build a positive credit history, showing lenders they use credit responsibly.
Clearpay does not currently report BNPL transaction data to any credit reference agencies.
However, a spokesperson for the company said: “We are currently reviewing our approach to credit checks and recognise that appropriate and proportionate credit reporting can add value for customers.
“Our priority is to ensure that we create a solution that protects customers and provides the best possible outcome for them.”
Recently, the Treasury laid out plans to tighten up rules around BNPL in a bid to protect consumers.
This followed concerns being raised about the amount of debt that people are racking up in this way.
The Treasury raised concerns that BNPL doesn’t offer the same protections to shoppers as other forms of borrowing.
For example, if you buy an item on a normal credit card, you are protected by Section 75 of the Consumer Credit Act and also by chargeback.
Both of these can help you get money back if you don’t receive your item or it is faulty.
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The government said that BNPL lenders will be required to carry out affordability checks to ensure loans are affordable for customers.
It also wants change rules on promotion to make sure BNPL adverts are “fair, clear and not misleading”.