SHOPPERS who use Buy Now, Pay Later services will want to know which credit reference agencies include this on your file.
A number of companies are now starting to report these transactions on your credit file – and it could have an impact on you getting credit or a loan.
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BNPL schemes, like Klarna, Clearpay and Laybuy, let customers pay for their shopping in interest-free monthly instalments to spread the cost.
It is available at online checkouts at high street shop websites including H&M and Asos.
But experts have warned about shoppers falling too easily into debt
An estimated eight million adults owe money on BNPL purchases.
The average debt per person stands at £538 per person, with £4billion owed in total, most recent figures from Credit Karma show.
We explain which credit reference agencies now include these purchases on your credit file – and what it means for your finances.
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Who includes BNPL on credit files?
Credit reference agencies put together information on how well you manage credit and make your repayments.
They hold information on your financial history, and these reports are used by lenders to help decide whether to lend money to you if you’ve made an application.
In the UK, there are three main credit reference agencies:
- Experian
- Equifax
- TransUnion (formerly Callcredit)
TransUnion announced earlier this month that it would be including BNPL purchases on credit files.
Now, Experian will follow and start listing this information on reports too, according to MoneySavingExpert.
Equifax has also confirmed to The Sun that it “fully intends” to start including these details in reports.
How it could affect your finances
There are a number of ways the shake-up could affect your finances – we explain more.
Impact on getting credit and loans
Lenders use credit reports to decide whether to loan you money for things like mortgages and credit cards – and some experts have warned using BNPL could affect your chances of a successful application.
Lenders who can see your BNPL transactions listed on your file might be concerned about whether you have the funds available to pay your way, Quilter mortgage expert Charlotte Nixon previously told The Sun.
Seeing these transactions listed on your file could cause lenders to reduce the amount they are willing to loan you or even reject your application over BNPL red flags, she said.
But this is more likely to happen in cases where you are using BNPL services frequently, for big purchases, or have multiple BNPL debts from different providers.
Your credit score
Using borrowing – like credit cards – responsibly each month can actually help build your credit score as it shows you can manage paying back cash.
A high credit score then improves your chances of being accepted for a credit or loan application and getting the best rates.
But shoppers using BNPL have been missing out on building their credit score even if they’ve used the service responsibly, because the transactions haven’t been logged on files.
Now that a number of credit reference agencies are starting to do so, it could mean your credit score could be boosted if you’re using it wisely.
TransUnion chief product officer Shail Deep previously told The Sun: “These changes will be really beneficial for those with thin credit files, supporting financial inclusion and wider access to credit, as well as helping to ensure finance providers have a holistic view of an individual’s borrowing, so they can use these insights to help ensure the right outcomes for consumers.”
Klarna has launched a scheme that rewards customer for paying on time – we explain if it’s any good.
BNPL customers could get refunds as well, after the watchdog identified potentially unclear terms and conditions of the scheme.
After a report last year, the firms will be regulated to stop millions of shoppers plunging into debt.
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