The Impact of Apple’s BNPL Reporting on Consumer Credit: What You Need to Know

Apple’s recent announcement that its buy now, pay later (BNPL) loans will be reported to Experian, a major credit reporting company, has raised concerns and potential consequences for consumers. While this move may help borrowers build a credit history, it could also have negative implications for their credit scores.

BNPL services have gained popularity among consumers due to their convenience and instant gratification. These services allow individuals to spread out payments over a few weeks or months without incurring interest, unlike traditional layaway plans. According to a survey by Bankrate, more than 40 percent of U.S. adults have used at least one BNPL service.

However, the simplicity of BNPL plans can mask potential pitfalls. Late payment fees can be steep, and consumer advocates worry that the easy availability of these loans encourages people to make purchases they can’t afford. In fact, the same Bankrate survey revealed that almost 30 percent of BNPL users admitted to spending more than they should.

One significant drawback of BNPL loans is that they are typically not reported to the three major credit reporting companies—Equifax, Experian, and TransUnion—limiting the incentive for borrowers to manage their spending and make timely payments. However, if a borrower fails to pay for an extended period, the BNPL provider may involve a debt collector, resulting in substantial damage to their credit. Furthermore, responsible use of BNPL loans doesn’t contribute to building a positive credit history.

While Apple has taken the step to report BNPL loan information to Experian, most other providers like Klarna and Afterpay have not yet announced similar plans. Affirm reports some longer-term loans to Experian but does not report its four interest-free payment plans, which are common in the BNPL structure.

In addition to these concerns, most credit scoring models have not adapted to incorporate the unique payment structure of BNPL services. Unlike monthly credit card payments, BNPL borrowers often make smaller, biweekly payments. As a result, this payment information is not factored into borrowers’ credit scores, which are crucial for lenders when assessing creditworthiness for other loans such as credit cards or mortgages. Experian acknowledges that BNPL loan information may be considered in credit scores in the future as new credit scoring models are developed.

Given these considerations, it’s clear that consumers should not rely solely on BNPL services to establish a positive credit history. The most effective way to build credit remains applying for a credit card, making timely payments, and keeping the balance below 20-30 percent of the card’s limit.

In conclusion, while Apple’s decision to report BNPL loans to Experian may have potential benefits for consumers in terms of building credit history, there are also drawbacks to consider. The lack of reporting by most BNPL providers and the current limitations of credit scoring models make it clear that relying solely on these services is not a reliable strategy for establishing creditworthiness. Taking a more traditional approach, such as responsibly using a credit card, remains the most effective method for building and maintaining a positive credit history.