The borrow now, pay later type of loan is fast becoming popular among many adults as it is easy to buy urgently needed products, even without having the necessary funds to pay for them.
A good majority of the average American adult has used this borrowing scheme to sort one need or another in recent times, making for a lot of data that could come in handy in studying the consumer credit behavior of Americans and other valuable information that can be derived.
However, these short-term loans that many people have been able to access and pay off swiftly currently have no impact on their borrowing qualifications whatsoever. Many believe that these loans should also count in their credit file as they seem to be the most accessible ones that are just as easy to pay.
As it stands, financial institutions do not have access to this potentially useful data, but Transunion has come up with a solution beneficial for all involved parties.
What Is The Transunion Solution?
Transunion is well known as a global insights company that seeks to provide solutions that could be helpful for economic growth and empowerment. According to Transunion’s Consumer Pulse Study, about 38% of approximately three thousand adults in the United States have made use of the ‘borrow now pay later’ loan in the space of 12 months, a loan that went smoothly but had no impact on their credit.
This company came up with a point-of-sale suite of solutions that could potentially solve many borrowers’ problems and make loans even more accessible for a wider range of people. This proposed solution is to include the point-of-sale data in a consumer’s credit file, which could potentially promote financial inclusion. Let’s review just how this solution could be beneficial.
- When consumers use ‘borrow now, pay later’ loans to purchase products and fulfill their loans successfully, it usually has no impact on their credit score or anything related. However, Transunion’s solution suggests including these BNPL data in borrowers’ credit reports. Opening and repaying these loans as at when due hence becomes a bonus for the borrowers as it could give them access to better credit opportunities and loan terms using the Transunion code.
- By adding point-of-sale data to a borrower’s credit file, it would be easier to access more data that could potentially enlarge a borrower’s credit access, increasing their FICO score.
- Through the buy now pay later loans, many consumers have access to short-term credit even during inflationary periods. Hence, adding this data to a consumer’s credit file will help those with no prior records to build better scores and ultimately increase financial inclusion.
- The major financial institutions, including FICO, FinTechs, and private lenders, would get enough time to restrategize their underwriting models to give borrowers performance credit on point-of-sale installment products. This is because the current underwriting models note point-of-sale loans as unsecured individual installment loans, giving borrowers the ability to get several loans in a year; an act which is also considered to be risky according to the current underwriting models as it makes it harder to predict a consumer’s credit score.
Eventually, Transunion’s suite of solutions will lead to the inclusion of point-of-sale data on a borrower’s credit file, which counts as good borrowing performance, so it subsequently increases the number of credit decisions a borrower can take.
As agreed by major financial institutions, FICO inclusive, the proposed solution by Transunion could be a borrower’s saving grace as it could be the key to financial inclusion for many and also make consumers more watchful for habits that could be detrimental to their credit files, effectively reducing bad debt and boosting loan accessibility to many.
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