Gephardt: How ‘Buy Now, Pay Later’ might help fight inflation

SALT LAKE CITY – One way to fight inflation is by having a higher credit score. Just 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 used “Buy Now, Pay Later” at least once in the past 12 months according to the credit bureau, Transunion.

By allowing us to break large purchases into smaller, interest-free payments, “Buy Now, Pay Later” has become a $100 billion industry

Until now, those loans largely were not reported to credit agencies – unless they were way past due. But now, Transunion, Equifax, and Experian are expected to start recording all “Buy Now, Pay Later” transactions this year.

“I actually think this could help a lot of people,” said Ted Rossman, senior industry analyst at Bankrate, who believes this change is good, if you are paying your “Buy Now, Pay Later” loan on time.

It lets lenders see how you are actually paying the bills and can help build or establish credit.

“This is an important way to not just get more people into the system but also to get a more accurate picture,” Rossman explained. “There’s a lot of these monthly payments that are falling outside of the credit system.”

But there could also be some drawbacks. For one, consumers who open several “Buy Now, Pay Later” accounts at the same time could sound off alarms: warning of a desperate credit situation. Plus, credit scores tend to give more weight to older accounts while “Buy Now, Pay Later” loans are typically short-lived.

These loans are not an open-ended line of credit. Buying a $2,500 exercise bike in payments chews up your entire $2,500 credit limit and that stings because you will look maxed out to potential creditors. Again, that could signal a lending risk.

“They still need to figure a few things out with how that’s going to work,” said Rossman.

For now, the bureaus are continuing to work out those details. Rossman believes consumers will have more to gain with this change than they do to lose.

“We need to broaden the way that credit scores are calculated,” he said. “It’s basically half of American adults have either no credit or bad credit and these alternatives (Buy Now, Pay Later) can help them.”

Experts say don’t take out 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 compounds the problems of inflation.