RENO, Nevada (KOLO) – What do services like Afterpay, Klarna and Zip have in common? They all allow buyers to buy now and pay later.
For years, these types of loans were mostly untracked by traditional credit reports, but that’s changing.
The Equifax credit bureau will begin adding these purchases to credit reports in an effort to give lenders a more complete view of people’s financial commitments.
According to Derek Louw, Director of Consumer Credit Auditors, this can be helpful for those just starting to build credit.
“It’s an easy way for people to establish positive credit so they can start increasing their scores and gaining better, more useful lines of credit,” Louw said.
These loans allow people to spread out their purchases over four fortnights with no interest or additional fees, making them convenient for many.
However, due to the short duration of these loans, consumers can open and close several at the same time, creating potential problems.
“What you need to be aware of affects the average age of your account,” Louw. “When you open a lot of new accounts, if you only have new accounts, that’s fine. You can go and open a handful. If you have other accounts that are more established and you’re trying to To beef it up a bit, you have to be careful how many new accounts you add to the mix.
There is also the risk of falling behind on payments and not only paying high late fees, but also negatively impacting your credit score.
With the rising cost of living, “buy now, pay later” options have become increasingly popular. According to Mercator Advisory Group, last year these purchases were expected to reach $55 billion.
Experian and TransUnion are also developing similar capabilities.
Most “paid-in-four” installment loan services have yet to announce when they will use the new system to begin reporting to Equifax.
In the meantime, remember that “save now, buy later” is always an option.
Copyright 2022 KOLO. All rights reserved.