BNPL Will Appear on Credit Records from the Summer, TransUnion Says

A major credit reference agency has announced that buy now pay later (BNPL) borrowing will appear on its consumer credit reports from this summer, the first agency to make this change in the UK.

TransUnion said the inclusion of BNPL finance on credit reports will protect consumers and help lenders fully assess applicants’ financial position before offering repayment plans.

BNPL schemes from providers such as Klarna and Clearpay have become ubiquitous at online checkouts. They allow consumers to spread the cost of purchases across weeks and months, often without interest or fees. The arrangements have exploded in popularity since the start of the pandemic: TransUnion’s research revealed that more than a third (35%) of Britons used BNPL products in 2021.

However, regulators and consumer advocates have raised concerns that BNPL services allow users to rack up thousands of pounds of debt with few financial checks. Additionally, many users fail to understand these arrangements as a form of debt or grasp the financial penalties for missing payments, according to consumer group Which?.

The Treasury is currently consulting on regulations for the fast-growing sector, which will likely include the requirements that BNPL providers conduct creditworthiness assessments before offering users finance and treat borrowers in arrears fairly and consistently. The reforms will bring BNPL products more in line with other forms of consumer credit such as credit cards and loans.

Adding BNPL agreements to credit files was one of the chief recommendations made by regulator the Financial Conduct Authority (FCA) following its 2020 review of the sector. But there is no formal requirement for their inclusion yet, and BNPL providers typically don’t pass reports onto credit reference agencies except in cases of serious default. Klarna has claimed that “less than 0.1% of Klarna UK customers have had their credit score impacted as a consequence of missing payments.”

TransUnion will become the first UK credit reference agency to incorporate BNPL agreements when it does so this summer.

Shail Deep, chief product officer at TransUnion in the UK, says that following “extensive industry analysis” and work with major BNPL providers, TransUnion “has been able to identify the most appropriate way to incorporate the data into our products.”

Incorporating BNPL agreements into credit files will “support consumers that are using this type of point-of-sale finance, whilst also ensuring lenders have a comprehensive picture of a borrower’s financial position,” said Satrajit “Satty” Saha, chief executive of TransUnion in the UK.

Adding BNPL arrangements will also be "really beneficial for those with thin credit files, supporting financial inclusion and wider access to credit, helping them build credit history,” Deep added.

Your TransUnion credit score won’t change overnight. TransUnion is planning a “phased implementation,” with data about BNPL payments first appearing on consumer credit reports from this summer.

The UK’s other credit reference agencies, Equifax and Experian, haven’t yet confirmed if they will incorporate BNPL schemes into credit files. Equifax’s US arm announced in December that it will record the plans on credit reports there from early 2022, but has made no similar announcement in the UK.

Meanwhile, a spokesperson for Experian said: “Experian works with several buy now, pay later providers to help them with affordability checks so they can understand their customers’ financial circumstances. We will continue to work closely with the sector as it evolves.”

Sources