Buy Now, Pay Later & Credit Score

Buy now pay later options do not generally affect peoples credit and do not yet routinely appear on most credit reports. The credit bureaus; TransUnion, Equifax, and Experian are each working through this relatively new system and how to report on these services in the context of credit worthiness and a borrowers financial obligations. 

This means that a good record of payment on your buy now, pay later accounts will not help build your credit. It also won’t hurt your credit unless your account is sent to collections. This payment option is popular with younger generations, as they are least likely to have built their credit. For now, it is a good way to practice building your credit. 

How Buy Now, Pay Later Works

When you purchase something online, some stores may offer to divide your purchase into smaller installment payments. Most often into four payments, every two weeks. The most used options are Affirm, Afterpay, Klarna, Paypal, and Zip. They partner with retailers who pay them commission. 

Approval is partially based on data that includes address stability, public records and previous history you may have with the lender and banking information. 

Opportunities for Credit Building

The credit bureaus are working hard to incorporate this method into their formulas. Consumers are using these accounts online more frequently than traditional credit cards and loans, especially young consumers. This could prove to be most beneficial to build up credit. 

There are Risks

Since buy now, pay later loans are new and unregulated they are often paid late, most often by consumers of the age group 18-30. BNPY lack the typical protections you would have under a credit card such as dispute resolutions. The easy access to the application causes the consumer to impulsively purchase and buildup debt faster than they normally would. The consumer may also rack up multiple BNPL accounts on multiple sites that could potentially lead to collection accounts. Once sent to collections, it will end up on credit reports. 

The Credit Bureaus

It has been decades since a new type of credit has been in the market. The BNPY system does not fit perfectly within the two categories they have in place now: Installment loans that span months or years and revolving credit like credit cards. 

The bureaus are working together to find a format that fits and are figuring out a common ground.

Current Plans:

• Experian has announced it plans a specialty bureau to hold buy now, pay later data. Information from the specialty bureau will be “promoted” periodically into the consumer’s core credit file.
  

• Equifax plans to add the information to regular credit reports.
  

• TransUnion has said it will partition off the data on core credit reports.

Navient's Deceptive Practices

Navient is one of the most well know student loan services in the United States. Millions of borrowers use this company to repay their federal and private student loans. They have lawsuits that allege harmful and deceptive practices that could impact your student loans. 

Below we will go deeper into Navient lawsuits that have began since 2017. 

Borrowers Being Mislead

The Consumer Financial Protection Bureau (CFPB) stated that Navient “illegally failed borrowers at every stage of repayment.” The CFBP alleged in a lawsuit that Navient damaged borrowers by providing negative and sometimes false information such as: not processing payments correctly and not taking the appropriate steps to rectify situations when borrowers submitted complaints to company.

The lawsuit had alleged that Navient purposely caused many borrowers to pay more on their loans than they were expected to. The CFBP is suing Navient for borrowers to get financial relief from their mishandling. 

The suit alleged that Navient directed borrowers into forbearance over other preferred options such as income-driven repayment plans. A forbearance temporarily pauses student loan payments without hurting the borrowers repayment standing, but the interest builds up while the borrower is not making payments. This means that borrowers end up paying more in interest rather than being able to save money while choosing the IDR plan. 

Navient Advises Pricey Options 

A lawsuit filed in October 2020 in New Jersey alleges that Navient pressured borrowers into taking out private student loans with co-signers, even though it wasn’t in the best interest of the borrower. New Jersey states that Navient told borrowers they could have family members guarantee their private loans as co-signers, but set in place almost impossible hurdles to let borrowers release their co-signers from the loan. This makes it so that Navient gets paid if the borrower defaults on the loan since Navient is able to collect by charging the co-signer on the loan. 

Lies and Collections

New Jersey states that Navient would tell borrowers that they owed more on the loan than they really did if they were behind on their loans. Navient did this by collecting the amount that was past due and also the next months amount. This has caused borrowers to overpay hundreds of dollars oftentimes when they could not afford it. The CFPB alleged that Navient would not allow some borrowers to discharge their loans even though they qualified. The CFPB stated that “severely and permanently disabled borrowers with federal student loans, including veterans whose disability is connected to their military service, have a right to seek loan forgiveness under the federal Total and Permanent Disability discharge program—Navient misreported to the credit reporting companies that borrowers who had their loans discharged under this program had defaulted on their loans when they had not.” 

How This Affects Your Student Loans 

Many lawsuits are still on-going, so as of right now you won’t see an impact. If you are experiencing any issues with your student loan servicer, you can take these steps to ensure that it is working in your best interest: 

• Review all of the details in your loan. Whether you have been on autopay or have not been able to make payments in awhile, you might not know what is happening with your loans or even the types of loans you have. Since Navient services private and federal loan lenders, you should check what you have before exploring your options.

• Look for alternatives on your own. You can explore different repayment options such as: income-driven repayment plans, forgiveness, or student loan refinancing. It is vital to know what options you have before speaking to your loan servicer so that you are informed about different offers.

• Ask the servicer for options. After researching on your own, contacting your servicer is next. Ask them what you qualify for and how each option will impact your repayment and what you will eventually repay over the lifetime of your loan. If the lender mentions that you do not qualify for specific programs or if they direct you to more expensive programs and payment options — it may be a red flag.

• File a complaint if necessary. If you believe that your loan servicer is causing you to pay more money than you think you owe or you’re being mislead, consider filing a formal complain. You can do this directly with your lender, your states attorney general or at the federal lever with the U.S. Department of Education, Federal Trade Commission, or the CFPB. If you do this, you will need documentation proving your case. Keep a detailed record of notes, every phone calls, and correspondence with your lender.

Does Navient Service Your Loan? 

Navient services millions of borrowers but it does not service ever borrower. You can check your servicer with the Department of Education if you have federal loans. The best way to find out who services your private loans is to check your latest correspondence. If you have not made payments in awhile, you should check your credit report. You can do this for free through www.AnnualCreditReport.com. Due to the pandemic you can check your reports weekly for free until April 2022. This will allow you to see all of your debt, including delinquencies, in default, and paid off loans. 

Will Navient Forgive Student Loan Payments? 

A lawsuit against Navient that was settled July 2020 gave no monetary damages to the borrowers affected. Instead, Navient implemented improved training for employees regarding PSLF. It is a possibility that future lawsuits could proved the affected borrowers a monetary compensation, but it is unlikely that Navient will forgive student loan payments. 

Many lawsuits are still ongoing. If you feel that you have been negatively and wrongfully affected by Navient, consider reaching out for help and guidance. 

Covid and Credit Score

Covid-19 has been such a unprecedented event and there is still a lot of work being done to configure how different situations should be treated and reported. 

The Fair Credit Reporting Act (FCRA) is a law enacted in 1970 that gives consumers certain rights when it comes to their credit reports that include the ability for consumers to dispute credit reporting errors. It also requires that furnishers (those that produce credit reports) are reporting accurate and up-to-date information. 

Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in March 2020. Part of this act ensures that consumers impacted by Covid-19 are still able to receive loan accommodations without having their credit score impacted. This means that when banks and other lenders provide a loan, payment deferrals, and other forms of relief to consumers due to the pandemic, it should not impact their credit score.

Many Americans have been heavily impacted by Covid-19 and have received these types of relief from banks and lenders. While these should not impact credit scores, there are different credit reporting agencies and different credit scoring models. The current challenge is to make sure that loan payment deferrals are being treated consistently. As a consumer, you have the right to view your credit score. Currently, you are able to obtain a free credit report weekly as opposed to yearly. It is important that you check your credit report and score regularly and to make sure to contact the credit reporting agencies if you notice any inaccuracies in your report, especially now if you have received a loan during the pandemic. 

If you feel that your credit report has inaccuracies contact us to take a look and to see if you have a claim. Consultation is free and you may be entitled to a settlement!