BUY Now, Pay Later purchases are set to appear on credit reports for the first time, meaning lenders will be able to see the borrowing.
TransUnion, one of the UK’s three major credit reference agencies, has said that BNPL can now be reported on credit files.
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BNPL is available at online checkouts at high street shop websites including H&M and Asos.
It lets you buy things now and pay for them at a later date, usually within 30 days, interest-free.
Millions of shoppers now use BNPL companies like Klarna, Laybuy and Clearpay.
When using BNPL, a “soft check” of eligibility is made, but this does not appear on shopper’s credit histories – unless you’re taking out longer finance terms, like repayments over three, six or 12 months,
BNPL also does not impact credit scores, unless you miss repayments, and debts can also be passed on to debt collection agencies.
But that will change as TransUnion will start including the borrowing on credit reports later this year.
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The company offers a free credit report and score check through the Credit Karma service.
It means some BNPL borrowing will now be seen for the first time on people’s credit reports and can be viewed by lenders.
Lenders use credit reports to decide if they will let you borrow money and how much, for things like mortgages and credit cards.
They make a decision based on a number of factors, like if you’ve kept up with repayments and how much money you’ve borrowed.
Currently mortgage lenders all take a different approach to BNPL, according to an Investigation by Which?.
Although lenders can’t see BNPL on your credit file yet, they ask for bank statements to see your spending and payments, and can see BNPL transactions there.
Some banks also ask specific questions about it when you’re applying for a mortgage in principle.
RELIANCE ON BNPL
It’s not clear yet exactly how the change will affect your credit score, which is a number that credit reference agencies give you based on your borrowing history.
We’ve asked TransUnion and will update when we hear back.
David Hollingworth from L&C mortgages said that while using BNPL alone shouldn’t pose a problem when applying for a mortgage, BNPL providers will be taken into account as an ongoing commitment.
He told The Sun: “When asked, it always makes sense for borrowers to disclose their outgoings and lenders will sometimes currently pick these arrangements up on bank statements.
“That may require an explanation, which could add some time to the process without necessarily resulting in a decline.
“Where there is a chance of a lender being more concerned is whenthere is substantial and ongoing use of BNPL which could make them anxious that there’s a reliance on BNPL.
“Availability on credit reference agency reports may just give more transparency to this type of arrangement and help lenders ask the right questions, especially if there is particularly regular and heavy use.”
The addition of BNPL to credit reports could also help build consumer’s credit scores for the first time, provided they paid on time.
BUILDING YOUR CREDIT SCORE
Using credit responsibly, like using a credit card and paying off the balance each month, helps build your credit score.
But shoppers using BNPL are missing out on this because it doesn’t show up.
Shail Deep, chief product officer at TransUnion in the UK, said: “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.”
TransUnion is one of three credit reference agencies in the UK.
The other two, Experian and Equifax, are understood to be working with BNPL companies too.
Not all credit reference agencies show the same information, and so not all BNPL lending will necessarily appear on the TransUnion credit report in future.
Klarna said it has been working with credit reference agencies for more for 18 months “so they can update their systems to accept BNPL data to better serve and protect consumers”.
A spokesperson said: “We will communicate clearly to consumers before making any changes to our products and would like to reassure them that no changes have been made as yet.”
Laybuy will not appear on TransUnion credit reports, but it’s is working with Experian and Credit Kudos, a challenger credit reference agency and is a Consumer Credit Account Information Sharing member.
We’ve also asked Clearpay if its BNPL will appear on TransUnion credit reports and will update when we hear back.
The change follows a crackdown by the financial regulator as BNPL use soared.
Shoppers will be given the same protections as they get with credit cards – but face a wait for new rules to come in.
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