Buy now, pay off later loans which will be formally included in your Equifax credit reports
From 2022, Equifax will be there the first company to prepare credit reports To standardize the process of including payment information Buy Now, Pay Later (BNPL) when calculating your credit score. The announcement came after an Equifax study found that including BNPL in credit reporting would help most consumers raise their FICO score by an average of 13 points.
“We are committed to helping people achieve the best financial performance and recognize the role that BNPL’s services can play in helping people build stronger financial profiles,” said Mark Luber, director of product, US Information Solutions, Equifax.
This can help borrowers who are up to date with their BNPL payment plans build a loan. However, credit reporting may not be of benefit to all consumers. Borrowers who are behind with BNPL payments could be adversely affected to their creditworthiness.
Read on to find out how buy now, pay later can affect your creditworthiness, including alternatives to BNPL, as well as BNPL debt repayment options such as consolidation loans. You can visit Credible to compare the interest rates of multiple lenders for free without affecting your credit score.
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How BNPL’s debt can affect your creditworthiness
Buy Now, Pay Later plans allow shoppers to break down their online purchases into multiple interest-free payments at the checkout – often without the need for a credit check. This financing option has been popular with consumers this holiday shopping season, with around 1 in 6 buyers planning to use BNPL’s services such as Affirm, Afterpay, and Klarna.
As Equifax will consider BNPL’s timely payments from 2022 onwards, this could have potentially negative credit effects. Holiday buyers who have used BNPL to finance their purchases may notice an increase or decrease in their creditworthiness in the new year, depending on their repayment status.
The Equifax study found that BNPL users had an average of 5.5 months of payment history. This may indicate an ongoing streak of timely payments for borrowers who are up to date with BNPL’s installment agreements, but it could potentially damage the creditworthiness of borrowers who have missed their monthly payments.
If you are unable to pay off the debt you have accumulated through BNPL’s services, you may consider using a debt consolidation loan. This type of personal loan is used to pay off debt at a higher interest rate in low monthly installments with a fixed interest rate.
Visit Credible to review the terms of your debt consolidation loan and use your 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 as this may offer a way to finance online purchases without credit checks, but often comes with late fees and down payment requirements. However, BNPL is not your only option if you need cash to cover large expenses. Here are some alternatives to using the BNPL service:
- Advance payment for payment. Apps like Chime, Dave, and Earnin allow employees to borrow small amounts of upcoming payouts, often without interest or fees. This financing option is only available to employed borrowers whose paychecks are issued through direct deposit.
- Credit Card Deals 0% APR. Some credit card companies offer interest-free 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 allow you to borrow a one-time sum of money that you pay off over a predetermined period of months, without putting your assets as collateral. Personal loans tend to have a low, fixed interest rate for well-qualified applicants, but require a credit check.
If you do decide to borrow a personal loan, it is important to compare the offers of multiple lenders while the interest rates are close to their historically low. You can start buying personal loan offers without affecting your creditworthiness by pre-qualifying on the Credible online lending platform.
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