‘Buy Now, Pay Later’ Loans May Soon Play Bigger Role in Credit Scores

Francis Creighton, the president and chief executive of the Consumer Data Industry Association, a trade group for the credit reporting industry, said it was important to have pay-later loans reflected on credit reports so lenders could have a true picture of a loan applicant’s overall credit profile. But because the loans are structured differently from traditional loans, he said, the credit bureaus first had to resolve “technical” issues to add them. “We have to make sure we do it right,” he said.

At the same time, the federal Consumer Financial Protection Bureau has stepped up scrutiny of pay-later companies. In mid-December, the bureau opened an inquiry, asking five companies to supply details about their business practices by March 1. The bureau, citing the “explosive growth” of pay-later during the pandemic and through the holiday shopping season, said it wanted to understand the potential benefits and risks to consumers better. The agency said it was also concerned about how the companies use the data they collect from customers.

The agency noted that if consumers use the loans for multiple purchases, they may have trouble keeping track of payments. “Because of the ease of getting these loans,” the agency said, “consumers can end up spending more than anticipated.”

Installment payments are usually deducted automatically from debit cards, so shoppers may be charged overdraft fees if they don’t have enough money in their accounts to cover the payments. If shoppers pay the installments with a credit card, they may run up additional debt and interest charges on their card if they don’t pay their installment balance in full.

Also, the consumer agency said, pay-later loans carry fewer protections than traditional credit cards, like the right to dispute a charge if a product is faulty.

Members of Congress, as well as consumer groups, have called for more oversight of the companies, noting that because the installment loans don’t use traditional credit checks, it’s not clear whether borrowers have the ability to repay multiple loans.

Here are some questions and answers about buy now, pay later credit:

Ms. Saunders said consumers should be confident that they will be able to make the required installments in the time allotted. With traditional credit cards, customers have a consistent payment schedule and a statement summarizing all charges, but someone with multiple pay-later loans may have to juggle multiple due dates. “They definitely want to make sure they’re keeping track of their payments,” she said.