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Buy Now Pay Later Credit Accounts

"If reported, a missed payment can be noted on your credit report for up to seven years and will negatively impact your credit score," says Rod Griffin, the senior director consumer education and advocacy at Experian. "At the same time, if a 'buy now pay later' lender reports account information to credit reporting agencies like Experian, and you are managing the debt responsibly, these services can be a helpful way to build credit."

buy now pay later credit accounts

Some of the factors that determine your credit history are the average age of your accounts, the age of your oldest account and how long it's been since you opened an account. (This is one of the reasons many people worry that closing a credit card could ding their score.)

Since 15% of your FICO credit score is determined by the length of your credit history, repeatedly taking out POS loans can decrease your credit score since it lowers the average age of your accounts, Tayne explains.

We analyse transactions data of four buy now pay later (BNPL) platforms on credit cards and debit cards at a major Australian financial institution over the period from January to December 2021, finding that approximately 40% of BNPL users operate more than one BNPL account. Relative to consumers with a single BNPL account, the average multiple BNPL account holder is more likely to be from a lower socioeconomic area, more likely to be receiving government benefits, has a higher credit card utilisation rate, and uses more personal loans. Multiple BNPL users thus likely represent higher credit risk for financial institutions, including BNPL platforms. However, as BNPL is not regulated as credit, the risk such customers pose is not completely visible to market participants.

LAUREN SAUNDERS: Well, buy now, pay later products, you know, can be better than a credit card if they help you avoid paying a lot of interest or amassing debt that you pay for months or years. But they can be tricky because they can make things look cheaper than they are, and people can add up debt in surprising ways.

SAUNDERS: Well, Apple Pay Later will be integrated into the Apple Wallet, so it would be very easy to use if you're buying something using an Apple device. They apparently are not going to give you the choice of linking your payments to a credit card, which is a good thing because you don't want to have the worst of both worlds - still paying interest on your credit card. But other than that, I think it'll be pretty similar to the other buy now, pay later products on the market - Klarna, Afterpay, et cetera.

SAUNDERS: Well, most people who use buy now, pay later do have other credit accounts. They tend to be younger. There is a higher percentage of people who are Black, Latino, females. And they tend to be lower income. A large percentage of people who have 20,000 to $50,000 of income use buy now, pay later.

SAUNDERS: Well, it should be. We think it's basically a credit card. And the Consumer Financial Protection Bureau is looking at that. But right now, the buy now, pay later companies are not giving you the same protections that you have with a credit card. You don't - there is no uniform set of fee disclosures. You don't get the same kind of charge-back protections if you don't get what you paid for. You don't get statements that collect all of your purchases in one place.

Lauren Saunders, associate director at the National Consumer Law Center, advises borrowers to avoid linking a credit card to buy now, pay later apps whenever possible. If you do, you lose the protections you get from using the credit card while also opening yourself up to owing interest to the card company.

As the cost of living increases, some shoppers have started breaking up payments on essentials, rather than just big-ticket items like electronics or designer clothes. A poll by Morning Consult last fall found 15% of buy now, pay later customers were using the service for routine purchases, such as groceries and gas, sounding alarm bells among financial advisors.

Hicks points to the rising number of delinquent payments as a sign that buy now, pay later could already be contributing to unmanageable debt for consumers. A July report from the Fitch ratings agency found delinquencies on the apps increased sharply in the 12 months that ended March 31 of last year, to as high as 4.1% for Afterpay, while credit card delinquencies held relatively steady at 1.4%.

The Report describes BNPL as a form of credit that allows a consumer to split a retail transaction into smaller, interest-free installments and repay over time. While BNPL products can vary, the typical BNPL product that forms the core of the current US BNPL industry divides a purchase into four equal installments, with the first installment paid as a down payment at the time of purchase and the next three installments paid in two-week intervals. According to the CFPB, most BNPL loans range from $50 to $1,000, and although BNPL typically is interest-free, consumers may be charged fees such as late fees. BNPL providers may offer this core product, by itself or alongside other more traditional products intended to finance purchases of goods or services, such as credit card accounts and longer-term installment loans. Additionally, BNPL providers may offer variants to the core BNPL product that, for example, have fewer than four installments or have payment cadences other than biweekly.

Buy now, pay later (BNPL) providers like Affirm, Afterpay and Klarna give shoppers the option to break up large purchases into interest-free installments at checkout. Until recently, BNPL wasn't included in credit reporting, which meant that these borrowers didn't benefit from making on-time payments.

Another more well-known type of fraud that is affecting BNPL is account takeover fraud (ATO). Fraudsters gain access to genuine customer accounts and use their cards to make payments, or to test stolen cards. It has been reported that attempted ATOs nearly tripled over Black Friday and Cyber Monday last year (2021). New companies and payment platforms are attractive targets because they have less fraud knowledge and historical data to combat many instances of ATO, which are unlikely to be picked up by new systems. 041b061a72


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