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9 Feb 2022

TransUnion to include 'buy now, pay later' borrowing on credit reports

Find out how your credit score could be affected by BNPL borrowing

TransUnion, a major UK credit reference agency, will start including people's 'buy now, pay later' (BNPL) borrowing data on its credit reports later this year.

BNPL schemes, such as Klarna, Laybuy and Clearpay, typically allow you to purchase items and pay for them in instalments or at a later date, interest-free.

But currently, there is an inconsistent approach to how BNPL firms report BNPL borrowing on credit reports, which has led to concerns that people have been able to build up large amounts of debt easily.

Here, Which? looks at how your TransUnion credit score could be affected by the change and whether other credit reference agencies are likely to follow suit.

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Why BNPL borrowing should go on credit reports

Although BNPL schemes are a form of credit, there is no consistent approach for how credit reference agencies report on this type of 'pay later' borrowing on credit reports.

This means that it might not show on your credit report if you've taken out BNPL agreements or if you've failed to make repayments.

Without this information on your credit file, other providers won't be able to make informed decisions on whether to lend to you, which could mean you are given more credit than you can afford to pay back.

Our research has revealed that many people do not realise they're taking on debt when using these schemes, meaning they could unwittingly be exposing themselves to serious risks of missing repayments and building up debts.

With the government planning to regulate the BNPL sector, Which? has called for affordability assessments and better credit reporting from BNPL firms to protect people from taking on more debt than they can afford.

Which BNPL schemes will be reported?

We asked TransUnion for more information on which firms and schemes will be reported on people's credit files.

The credit reference agency told us it can't currently disclose details of specific agreements, but that 'leading names in this sector' are already engaging with them.

It also told us that BNPL providers will be able to provide data to TransUnion as soon as they're ready to do so.

If you've got a repayment plan with a BNPL scheme, TransUnion told us the provider will be in touch to make you aware that your data will be shared with TransUnion before it appears on your credit file.

Most interest-free BNPL schemes, such as Klarna, Laybuy and Clearpay, are currently unregulated so the firms don't have to report information about your borrowing on your credit report. But if you've taken out credit with a regulated BNPL scheme - such as Zilch or Monzo Flex - your credit and repayment history should already be visible on your credit report.

How and when will my credit score be affected?

TransUnion told us there will be no immediate effect on your credit score. It's planning a 'phased implementation', with data starting to appear on credit reports from summer 2022.

It's not yet clear how your credit score might be lowered or boosted - the credit reference agency didn't provide any specific detail on how your score might be affected, but told us it will be updating its scoring mechanisms as required to ensure BNPL finance is represented 'appropriately and proportionately'.

Though your credit score won't be immediately affected, TransUnion explained that your BNPL agreements will be visible to other lenders, making it even more important that you don't miss repayments.

Will other credit reference agencies follow suit?

Alongside TransUnion, Experian and Equifax are the other two major credit reference agencies lenders that create credit reports on adults in the UK.

Not all lenders share the same information with these three agencies, which means your credit report might look slightly different if you compare between them.

We asked Experian and Equifax whether they're likely to follow suit and start reporting BNPL data on their own reports.

Experian told us it works with several BNPL providers to help them with affordability checks so they can understand their customers' financial circumstances. It says it will continue to work closely with the sector as it evolves.

Equifax told us it fully intends to include BNPL data in credit reports. It said its data will be 'incorporated in a measured and proportionate way that doesn't unduly skew consumers scores or disrupt methodologies we use.'

In the meantime, Equifax is using Open Banking technology 'to give an accurate picture of affordability to our lenders.'

Which? believes there must be no further delay to BNPL regulation to ensure all 'pay later' schemes carry out affordability assessments and better credit reporting to protect credit users.

11/02/2022: page updated with Equifax's response