The future integration of buy now pay later (BNPL) data into credit ratings presents a significant opportunity for younger demographics in the US who are keen on building their credit scores.

As credit bureaus move to include BNPL activity in their credit reports, this could reshape the lending landscape, offering a dual advantage to both lenders and consumers. It will provide BNPL providers a new marketing angle, promoting their ability to help consumers establish their creditworthiness in a non-traditional way, such as Experian and Apple have recently done.

GlobalData 2023 Financial Services Consumer Survey

GlobalData’s 2023 Financial Services Consumer Survey findings highlight a marked preference for BNPL services among 18–24-year-olds in the US, with 50% having used such services in the past six months. This is significantly higher than 31% across the entire population.

Moreover, the same demographic exhibits a lower propensity to hold credit cards, with 28% not owning any compared to the market average of 14%. This suggests that BNPL is not only a popular payment method but also a potential tool for credit history building among young consumers, due to the lack of desire for traditional credit-building products such as credit cards.

The survey also reveals that improving credit scores is the most important financial goal for 28% of 18–24-year-olds. This contrasts with the broader market, where only 18% cite credit score improvement as their top priority. The alignment of BNPL services with the credit-building aspirations of younger consumers could therefore be a strategic opportunity for BNPL providers. These companies can market their services as good credit builders for customer who have not previously held credit products. By reporting repayment behaviour to credit bureaus, these providers can offer a pathway for young adults to achieve their primary financial objective while fostering responsible credit habits.

The absence of BNPL data in traditional credit reports has historically posed risks for lenders, such as mispricing credit risk, inaccurately forecasting consumer capacity, and failing to meet compliance requirements due to undisclosed debt. The integration of BNPL information by credit bureaus aims to mitigate these challenges by providing lenders with a more comprehensive view of a consumer’s financial obligations and payment behaviors.

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More accurate pricing of credit, reduced risk of default

Although not immediately affecting traditional credit scores, credit bureaus including BNPL in their credit reports sets the stage for more informed lending decisions. As lenders gain access to millions of BNPL credit records, they will be better equipped to assess creditworthiness and tailor credit offers accordingly. This could lead to more accurate pricing of credit products and a reduction in the risk of default.

While BNPL data is currently separate from traditional credit scores, Experian has indicated that this may change as new credit scoring models are developed. The integration of BNPL data into traditional credit scores will allow for a clearer long-term picture of customers’ credit behaviour and how they are likely to act when looking at different credit products in the future.

Harry Swain is an associate analyst at GlobalData plc