Whether you call them pay-in-4 plans or point-of-sale loans, small dollar financing is taking the country by storm. And Equifax will soon start listing them on credit reports.
Dear Dr. Per Cap:
You haven’t written about credit reports in a while. Any new developments with how the credit bureaus are listing information on our credit reports?
Signed,
Wise Borrower
Dear Wise Borrower
A while back I wrote about point-of-sale loans that allow shoppers to make small purchases with payments. Increasingly popular in stores and online checkouts the loans are similar to old school layaway except you get the product right away instead of waiting until you’ve made all the payments.
One drawback to point-of-sale loans, which are sometimes dubbed pay-in-4 plans because they typically require one payment upfront followed by three bi-weekly payments, is that they don’t usually show up on a person’s credit report.
That presents a major drawback for anyone needing some clean payment history to either improve or repair their credit. However, a new development is that very soon the credit bureau Equifax will start including pay-in-4 plans on its consumer credit reports.
This is good news for anyone looking for a little credit score boost, especially folks who use pay-in-4 plans on a regular basis. The other two credit bureaus, TransUnion and Experian, aren’t currently reporting pay-in-4 plans but are working to include them on their credit reports in the future.
Take note that there are a few glitches the bureaus need to work through along with lenders who specialize in point-of-sale like Afterpay, Klarna, and Affirm. For example short term loans which are quickly opened and closed can currently ding a person’s a credit score. So the plan is to tweak the scoring models so they don’t unnecessarily harm borrowers.
Whether you call it point-of-sale, pay-in-4, or my personal favorite buy now, pay later this form of financing is popular among folks with thin credit histories that make it difficult to secure larger traditional loans. The added bonus of now having these small loans listed on credit reports could go a long ways towards improving credit scores. However, bear in mind that if a person doesn’t make pay-in-4 plan payments on time as agreed that poor payment history will show up on a credit report too which can negatively impact a credit score.
So like any loan or form of credit it’s super important for borrowers to use these products responsibly and get familiar with all the terms and conditions.
Ask Dr. Per Cap is a program funded by First Nations Development Institute with assistance from the FINRA Investor Education Foundation. For more information, visit www.firstnations.org. To send a question to Dr. Per Cap, email askdrpercap@firstnations.org.