Klarna and Afterpay Keep BNPL Data From Credit Bureaus

An effort by FICO to include consumers’ buy now, pay later (BNPL) activity in credit scores has reportedly hit a snag.

Two providers of installment payment programs — Klarna and Afterpay — said they won’t share loan data with credit bureaus until they know their customers won’t be unfairly penalized, The Wall Street Journal (WSJ) reported Tuesday (Aug. 5).

“Credit reporting, scoring and interpretation still largely operate under legacy frameworks,” said Juan Hernandez, head of credit and underwriting at Block, Afterpay’s parent company, per the report.

Block did not reply to PYMNTS’ request for comment. A spokesperson for Klarna provided PYMNTS with a statement saying the company “welcomes FICO’s ambition” in modernizing credit scoring to better reflect BNPL usage.

“For years, we have supported credit reporting that benefits consumers — that’s why we share BNPL data in the U.K. and report our term loans in the U.S., making it visible to consumers but excluded from credit scores,” the statement said. “While the U.S. credit reporting framework doesn’t reflect how short-term BNPL products are used, we look forward to a system where these products can contribute positively to consumers’ credit standing.”

While BNPL transactions are expected to reach $100 billion this year, financial companies can’t agree on whether using these services makes borrowers a risk, the report said.

For example, banks say the use of the loans could hinder a consumer’s chance of getting a mortgage or a new credit card, per the report. FICO said its new scoring system may help improve the credit scores of responsible BNPL users. Klarna said sharing customer data widely leaves that data open to interpretation.

BNPL loans let consumers pay for products and services in installments over time. However, these loans don’t appear on credit reports, meaning lenders can’t see exactly how much debt borrowers are carrying.

Affirm became the first major BNPL provider to begin sharing consumer data with credit bureaus Experian and TransUnion in the spring. Klarna, meanwhile, shares information on its longer-term interest-bearing loans, but not the BNPL plans, which account for the bulk of its U.S. business, the report said.

While credit bureaus have not turned over that data to lenders or included them in credit scores, TransUnion said it would be prepared to do so in the months ahead, according to the report.