Apple's buy-now-pay-later service will report customer data to Experian, in a 'very positive first step' for consumers

By Venessa Wong

Many buy-now-pay-later customers use the payment method because they believe it will help them build credit, which is largely not the case.

Users of Apple's (AAPL) buy-now-pay-later platform will soon have their payment history reported to one of the major credit bureaus, but it won't affect their credit scores - at least not yet.

The announcement marks the latest move by credit bureaus to gradually incorporate buy-now-pay-later data into their models as this type of debt becomes more popular.

Apple Pay Later, launched last March, allows users to pay off a purchase in four payments over six weeks. Starting March 1, Apple customers' loan information will appear on their credit reports with Experian (UK:EXPN), one of the three major credit-reporting agencies.

"While consumers will be able to see their Apple Pay Later loan information on their Experian credit report, the information won't be factored into existing traditional credit scores but may in the future as new credit scoring models are developed," according to the credit bureau.

The move comes as new research has shown that many buy-now-pay-later customers use the payment method because they believe it will help them build credit, which is largely not the case.

Apple sending data to Experian could ultimately benefit consumers who make payments on time, one expert said. "Apple's move to send buy-now-pay-later loan information to Experian is a very positive first step," Ed deHaan, a professor at the Stanford Graduate School of Business, told MarketWatch.

So far, buy-now-pay-later loan information has mostly not shown up on credit reports. Affirm (AFRM) reports monthly installment data to Experian but does not report users' "pay-in-four" history, in which customers pay off a purchase in four installments. "We support credit reporting for pay-over-time transactions in a manner that is beneficial for consumers and the broader financial system. Reporting to credit bureaus helps drive positive credit outcomes," an Affirm spokesperson said.

Klarna and Afterpay (SQ) do not report payment data to the credit bureaus, MarketWatch previously reported.

The lack of reporting "increases the risk that especially vulnerable buy-now-pay-later users stack debts across multiple buy-now-pay-later providers. This is the so-called phantom debt problem," deHaan said, referring to the idea that because buy-now-pay-later activity isn't consistently reported to credit agencies, there's no clear picture of the financial health of buy-now-pay-later users.

On the other hand, financially stable people who make buy-now-pay-later payments on time are not getting credit from the reporting agencies for responsibly managing their loans. Some consumers mistakenly believe that using buy-now-pay-later services can help them build credit, which so far has not been the case, because those payment histories have typically not been reported to the credit bureaus.

"We think this is a positive development and hope that other buy-now-pay-later providers follow suit," said Jennifer Chien, a senior policy counsel on the financial fairness team at Consumer Reports.

Apple aims to promote transparency and responsible lending and to allow users to build their credit, Jennifer Bailey, vice president of Apple Pay and Apple Wallet, said in a statement.

The lending industry is moving quickly to have buy-now-pay-later data reported to the credit bureaus, a TransUnion (TRU) representative told MarketWatch. Those bureaus must still determine how they will incorporate users' payment histories into their credit scores.

"Credit bureaus have a responsibility to incorporate this data in a meaningful and useful way. If they haven't had this data yet, there's no way they can know what it means in terms of people's ability to take on credit," deHaan said. Apple Pay Later users tend to have higher incomes and to be more financially savvy than the average buy-now-pay-later consumer, he noted, which means that their information alone is not sufficient to build models.

Apple Pay Later users are more likely to have higher credit scores than the customers of other buy-now-pay-later providers, according to J.D. Power studies, which found 27% of Apple Pay Later customers have scores of at least 720, which is considered "excellent."

"Now that Experian has the loan data, they can begin figuring out how to incorporate it into credit scores, and lenders can also now use the data in their own models," deHaan said.

Do you use buy-now-pay-later? MarketWatch would like to learn more about your experiences and why you use buy-now-pay-later. Let us know at readerstories@marketwatch.com. One of our reporters might reach out to you to learn more.

-Venessa Wong

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02-29-24 0940ET

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