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Credit scores will tank further

milesrout 1y ago
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ZYbCRq22HbJ2y7 1y ago
Why? "The industry has long believed that consumers using BNPL responsibly should result in positive credit scores, as the majority of users are paying back in full and on time."
- steveBK123 1y ago
  Because "most people pay back fully on time" is not the metric. The real question is what are the delinquency and default rates for BNPL as compared to other forms of consumer credit. Given the previous understanding that it didn't hit your FICO, the retailer subsidy as a sales lead, and the types of products people were financing.. one might assume worse..
- firesteelrain 1y ago
  Because it’s shadow debt and it will show the person as overleveraged with a bunch of Affirm loans
UltraSane 1y ago
If customers make every payment their score should improve.
- dh2022 1y ago
  What is the benefit for a consumer to use this type of loan and then pay it back on time versus using a credit card and then paying the card back on time? To me this seems like a new product that would target a different consumer than the one that makes payments on time. But I would like if someone challenges this view. Thanks!
  - loeg 1y ago
    > What is the benefit for a consumer to use this type of loan and then pay it back on time versus using a credit card and then paying the card back on time? Slightly longer repayment time frames. (Multiple months instead of just one.)
    - dh2022 1y ago
      This sounds like a consumer that does not pay the balance each month…
      - wildzzz 1y ago
        CC gives me 30 days to pay it back interest free. BNPL gives me 2, 3, 6, or more months with very little or even no interest. If I know I'm not going to be able to pay it off in a month, I'd rather do a BNPL loan since it's so cheap. Additionally, you can have awful or no credit and still be approved for BNPL. It may be beneficial to have some repaid loans on your credit if you ruined your credit earlier in life like this credit builder CCs that have a super low limit.
        Ancapistani 1y ago
        I’ll add that I’ve found that the more you use Affirm at least, the better my options get. I started by always choosing the shortest “plan”, which was 0% and no fees. After I’d paid off a few of those, I started getting offered plans of up to a year with no interest and very minimal fees. Now, while I don’t use Affirm for luxury/unnecessary purchases, it offers better rates than any credit card I have, and better than a bank loan in many cases. I have three Affirm loans right now, for a total of about $8k. All three of those are business expenses, and all three have increased profit in our business significantly more than they cost us.
      - loeg 1y ago
        I should have specified those durations are both interest-free. If you don't pay your credit card off after one month, it accrues interest at fairly high rates.
- firesteelrain 1y ago
  Not if it shows a bunch of Affirm loans. You could look overleveraged for say getting a mortgage
  - charcircuit 1y ago
    Are people taking out a large number of large Affirm loans though?
  - bitmasher9 1y ago
    1. Maybe they are over leveraged, let a bank to decide with all the data. 2. BNPL often has short durations (3 months) so it’s not a long term problem for people with BNPL if they pay it all back.
    - firesteelrain 1y ago
      Affirm can go up to 60 months on larger purchases A bunch of tiny loans does not loom good
      - astura 1y ago
        Urban myth. I successfully applied for a mortgage with ~30 credit cards open. Nobody batted an eye, or even commented on it. They looked at balances and credit score. Balances were almost all zero and credit score was excellent. A hundred small loans that were all paid off on time over the last decade is extremely helpful getting you a mortgage, it doesn't hurt.
        firesteelrain 1y ago
        > Balances were almost all zero and credit score was excellent Not the same. > hundred small loans that were all paid off on time over the last decade is extremely helpful getting you a mortgage Again, not the same. Affirm can be worse than credit cards because credit cards are a single line of credit of X size. The people using it don’t realize that a bunch of tiny lines of credit add up to a larger one ultimately and they can find themselves overleveraged.
- bediger4000 1y ago
  We don't really know that. The algorithm is secret.
- burnt-resistor 1y ago
  That's an incomplete answer because it doesn't take total debt burden and history of payments into account over time. Score is fluid and should decrease while debt burden is high or increases. At the end though, score should improve slightly because they are slightly more trustworthy having repaid what was promised.

[dead]

Why? "The industry has long believed that consumers using BNPL responsibly should result in positive credit scores, as the majority of users are paying back in full and on time."

steveBK123 1y ago
Because "most people pay back fully on time" is not the metric. The real question is what are the delinquency and default rates for BNPL as compared to other forms of consumer credit. Given the previous understanding that it didn't hit your FICO, the retailer subsidy as a sales lead, and the types of products people were financing.. one might assume worse..
firesteelrain 1y ago
Because it’s shadow debt and it will show the person as overleveraged with a bunch of Affirm loans

UltraSane 1y ago

If customers make every payment their score should improve.

dh2022 1y ago
What is the benefit for a consumer to use this type of loan and then pay it back on time versus using a credit card and then paying the card back on time? To me this seems like a new product that would target a different consumer than the one that makes payments on time. But I would like if someone challenges this view. Thanks!
- loeg 1y ago
  > What is the benefit for a consumer to use this type of loan and then pay it back on time versus using a credit card and then paying the card back on time? Slightly longer repayment time frames. (Multiple months instead of just one.)
  - dh2022 1y ago
    This sounds like a consumer that does not pay the balance each month…
    - wildzzz 1y ago
      CC gives me 30 days to pay it back interest free. BNPL gives me 2, 3, 6, or more months with very little or even no interest. If I know I'm not going to be able to pay it off in a month, I'd rather do a BNPL loan since it's so cheap. Additionally, you can have awful or no credit and still be approved for BNPL. It may be beneficial to have some repaid loans on your credit if you ruined your credit earlier in life like this credit builder CCs that have a super low limit.
      - Ancapistani 1y ago
        I’ll add that I’ve found that the more you use Affirm at least, the better my options get. I started by always choosing the shortest “plan”, which was 0% and no fees. After I’d paid off a few of those, I started getting offered plans of up to a year with no interest and very minimal fees. Now, while I don’t use Affirm for luxury/unnecessary purchases, it offers better rates than any credit card I have, and better than a bank loan in many cases. I have three Affirm loans right now, for a total of about $8k. All three of those are business expenses, and all three have increased profit in our business significantly more than they cost us.
    - loeg 1y ago
      I should have specified those durations are both interest-free. If you don't pay your credit card off after one month, it accrues interest at fairly high rates.
firesteelrain 1y ago
Not if it shows a bunch of Affirm loans. You could look overleveraged for say getting a mortgage
- charcircuit 1y ago
  Are people taking out a large number of large Affirm loans though?
- bitmasher9 1y ago
  1. Maybe they are over leveraged, let a bank to decide with all the data. 2. BNPL often has short durations (3 months) so it’s not a long term problem for people with BNPL if they pay it all back.
  - firesteelrain 1y ago
    Affirm can go up to 60 months on larger purchases A bunch of tiny loans does not loom good
    - astura 1y ago
      Urban myth. I successfully applied for a mortgage with ~30 credit cards open. Nobody batted an eye, or even commented on it. They looked at balances and credit score. Balances were almost all zero and credit score was excellent. A hundred small loans that were all paid off on time over the last decade is extremely helpful getting you a mortgage, it doesn't hurt.
      - firesteelrain 1y ago
        > Balances were almost all zero and credit score was excellent Not the same. > hundred small loans that were all paid off on time over the last decade is extremely helpful getting you a mortgage Again, not the same. Affirm can be worse than credit cards because credit cards are a single line of credit of X size. The people using it don’t realize that a bunch of tiny lines of credit add up to a larger one ultimately and they can find themselves overleveraged.
bediger4000 1y ago
We don't really know that. The algorithm is secret.
burnt-resistor 1y ago
That's an incomplete answer because it doesn't take total debt burden and history of payments into account over time. Score is fluid and should decrease while debt burden is high or increases. At the end though, score should improve slightly because they are slightly more trustworthy having repaid what was promised.