How “Buy Now, Pay Later” Could Help Fight Inflation
SALT LAKE CITY – One way to fight inflation is to have a higher credit score. Just a few weeks ago, “buy now, pay later” payments started showing up on credit reports. But can this change help Utahns improve their credit scores?
From Adidas sneakers to Zales diamonds, 100 million Americans have used “Buy Now, Pay Later” at least once in the past 12 months according to credit bureau Transunion.
By allowing us to split large purchases into smaller, interest-free payments, “Buy Now, Pay Later” has become a $100 billion industry.
Until now, these loans have largely gone unreported to credit agencies – unless they are delinquent. But now, Transunion, Equifax and Experian are expected to start recording all Buy Now, Pay Later transactions this year.
“I actually think it could help a lot of people,” said Ted Rossman, senior industry analyst at Bankrate, who thinks this change is good, if you pay your “Buy Now, Pay Later” loan on time.
It lets lenders see how you’re actually paying bills and can help build or establish credit.
“It’s an important way to not only get more people into the system, but also get a more accurate picture,” Rossman explained. “Ethere are a lot of those monthly payments that don’t fall under the credit system. »
But there could also be some downsides. On the one hand, consumers who open multiple “buy now, pay later” accounts at the same time could sound the alarm: a warning of a dire credit situation. Additionally, credit scores tend to give older accounts more weight, while “buy now, pay later” loans tend to be short term.
These loans do not constitute an indefinite term line of credit. Buying an exercise bike for $2,500 in payments eats away at your entire $2,500 credit limit and it stings because you’ll look maxed out to potential creditors. Again, this could signal a loan risk.
“They still need to figure out how it’s going to work,” Rossman said.
For now, the offices continue to work out these details. Rossman thinks consumers will have more to gain from this change than they have to lose.
“We need to expand the way credit scores are calculated,” he said. “This is Basically, half of American adults have no credit or have bad credit and these alternatives (Buy Now, Pay Later) can help them.
Experts advise not to take more than two Buy Now, Pay Later loans at a time. Otherwise, you could see your credit score drop, forcing you to pay more for loans and home and auto insurance, which only makes inflation problems worse.