Credit reporting and phantom debt
For consumers, one of the advantages of BNPL deals is easy access to credit. Typically, credit is extended through "hard checks" on a credit record. Credit scores, which govern access to credit, tend to fall with more than a couple of hard checks within one year. Most BNPL providers, however, perform "soft checks" that don't affect credit scores for short-term purchases, such as those of four or fewer installments. While retaining the option to report delinquent accounts to credit agencies, BNPL lenders argue that the three major credit bureaus -- TransUnion (TRU -1.17%), Experian (EXPN -1.87%), and Equifax (EFX -1.29%) -- aren't capable of handling their information and could harm consumer credit scores.
One of the bigger issues with the lack of hard credit checks is that borrowers aren't rewarded with higher credit scores when they make all their payments on time. And while falling behind on BNPL accounts won't necessarily show up immediately on a credit report, borrowers can be hit with late fees and delinquent accounts can be turned over to collection agencies.
