I don't see much difference between BNPL vs. what's traditionally tagged as a CFA under the FICO algorithms.
That article indeed sucked for all that I do appreciate the post as it's an interesting look at where the credit reporting market may be headed (well to be clear they'll aggregate as much data as possible with their business model but what they decide to include on a credit report differs from that goal somewhat), I had to re-read some of it twice and it still didn't make any sense.
Good read! Of all the CBs this is the one that scares me the most? They just don't seem to be on curve with the today? Wish users good luck as it relates to EX Reporting!
More on BNPL
Some Americans are getting into money trouble with buy now, pay later financing
Equifax is first in line, with Experian coming in the Spring, and TransUnion later this year. This WSJ article speculates on the credit score impact, but it is clear that missing a payment will now ding FICO scores.
That article is utterly incomprehensible.
I wonder if that was a factor in the publisher taking it down. It's now linking to a 404 error.
This is interesting and I wasn't aware of it. I've come to use PayPal's Pay in 4 very heavily as I've found it just smooths out cash flow since my purchases are always uneven with a burst of purchases all at once and then next to nothing for a month, is no interest, and just makes life smoother. Why not earn interest on that purchase money longer? I've probably done 2 dozen of these in the past 3 years. Loved it. Made budgeting much simpler.
Sounds like it's going from convenience no-interest tool to the category of "high risk" overnight.
Reading this...if it shows on reports, that makes the feature almost useless. Accounts opening/closing and contributing to util? It turns a phenominal budgeting tool into a self-destructive waste. It turns a nice installment payment into plain old revolving debt? It sounds like I'll end up never using it again, which is unfortunate. I can't see how the industry survives long if it basically becomes a "payday loan" equivalent.
Unfortunately it says they'll report 6 months meaning several of these will be on my report soon. Still have one payment on one in the next week or two. Not sure if that's a good thing or a bad thing, though, considering I'm working fixing a thin file and it's about to be less thin.
It's like the vultures are circling and looking for any way to pick our bones clean. I've used the PayPal pay in 4 in the past for airline tickets on AA for my family to travel just to spread it out and earn a little more interest on my money. Sounds like I won't be doing it again and certainly won't be using the Plan It feature on my AmEx either. This is such a great little tool for people and I think folks will stop making purchases using this method in light of this and it could put this industry out of business or drastically reduce their business. Man, what a way to suck economic empowerment away from people and dollars out of the economy.
It's going to be a total mess. Unfortunately, I think it'll be even worse than that industry going under, which is what should happen if it's going this route. The industry is starting with reporting without the dinosaur lenders really understanding anything about it still, and it will take them years (or decades) to catch up and know how to really factor it and have their statistical models able to use it fairly. And some (especially the old models) never will. They'll continue marketing it heavily as "pay in a few easy payments, no credit check, approval will not affect your credit score!(*)" on checkouts everywhere, and consumers that aren't reading myFico will continue to embrace it. The one report says 1/3 of US consumers have used it. They will still make it not clear that you're taking out an actual credit line with actual reporting that will actually affect your score and lender data. And where they do acknowledge it it will tell you how your helping build your credit by doing so without mentioning how you're hurting credit if you already have good credit. And old searches on the internet for the tiny portion of customers that care will show plenty of threads talking about how it doesn't report (same as PayPal Credit, an actual store card, still does.) And to make the mess worse, all 3 bureaus are going to treat it entirely differently.
Those of us reading about this will know BNPL is now a toxic poison to credit and stop now hopefully before it does damage. Most consumers will continue using it based on misleading advertising of how benign it is, and it will probably actually grow in market share. Meanwhile people's credit and approvals will be confusingly a mess for probably several years (or decades) until the banks figures out how they actually want to handle this and it may eventually become perfectly safe and beneficial to use (like a 0% APR card without the same util effect) someday.
My best guess is it will fly under the radar and people will be confused about their credit drops and poor approvals for years until it somehow hits the media and either gets a stigma and finally goes out of business, or becomes so contentious that CC lenders fall over themsleves to be competitive within their real credit products.
I will greatly miss it. I've used it so much, and funneled a lot of business to PayPal accepting merchants specifically to use it heavily. It's been an excellent tool. Without it, I might as well go back to buying everything at Amazon (and get that Chase card next on the list.) Heck, I've even used Amazon's 5 month version on multiple purchases. The entire purpose of BNPL is that it's store payments not tied to credit. I understand why lenders what to know about it, but then, why does it exist at all if it's no better than a 0% APR card offfer or 6-month interest free financing deal/PP Credit?
Technically reporting it doesn't have to be "bad", showing positive payment on credit use should be good, and 4 payment plans should be slam-dunk positive history, just like the bureau marketers are trying to claim. But because of how lenders use data it will be bad for a long time before it's not bad, I think.
@uncredited, I agree about the lack of statistical data and the need to wait until they have enough info to be able to adequately determine the best tracking and reporting methods. I'd prefer they just leave it alone, but I see it going the same way that the old Lay-A-Way system went ... to the graveyard of long gone purchasing power tools for families. The Lay-A-Way was good for stores and families because if you didn't pick up your stuff in a certain period you forfeited your funds and the store got to keep the cash and re-stock the item. I guess because we consume so much more on a faster schedule, it got hard to maintain this system as we evolved into online shopping and people had more discretionary income and just spent more and bought more stuff more often, so re-stocking began to mean out of season items being on the shelves and retailers had to move the product as a sale, clearance, or sell to an overstock retailer (Marshall's, Ross, TJ Maxx)? IDK but, I remember my mom put furniture and Christmas stuff on layaway a lot when I was young. BNPL is our modern day lay-a-way and the fact that it's going to be reported on credit is crazy because these plans move far too fast, but also due to the lack of transparency when purchases are made as well. I don't recall PayPal advising this was reportable when I used the pay in 4 for my AA airline tickets. Absolute 💩show