Failing to pay a BNPL loan on time can hurt a customer’s credit score—something New York resident Alana Cimillo says she learned the hard way.
In 2019, Cimillo learned that her ex-fiancé used her Social Security number without her knowledge to take out 23 loans from Affirm, according to allegations in a lawsuit filed in November, and he’d allegedly failed to fully repay 18 of them.
It wasn’t until she heard from a collections agency retained by Affirm that Cimillo understood the extent of the issue, the suit says. Cimillo reported what she describes as identity theft to police, and disputed the loans directly with Affirm multiple times throughout 2020. But Affirm ultimately concluded that the loans were valid and that Cimillo was responsible for paying them, the suit alleges. (CR isn’t naming the ex-fiancé because he hasn’t been criminally charged.)
By mid-2021, the suit says, Cimillo received alerts that her FICO credit score had dropped from almost 800 to 674. She felt the effect of that when she went to buy a car that July and learned from the dealer that she wasn’t eligible for the promotional 0.9 percent car loan interest rate, “and that the best interest rate she could get would be 4.9%,” according to her complaint.
Affirm declined to comment. Adam Singer, Cimillo’s attorney, declined to comment specifically on the case, citing the pending litigation, but he says it’s concerning that consumers can attain so many BNPL loans at once. He would not be surprised, he says, if someone were to lose track of payment schedules, given the potentially high number of loans, and that if one went delinquent, the consumer would likely see an impact on their credit score.
“They could have great credit, but all of a sudden they could now have a serious delinquency, ” he says.
Policies on whether delinquent loans get reported to a credit bureau vary by lender. Afterpay and Klarna, for example, say they do not report missed payments to credit bureaus, while Affirm says some delinquencies do end up getting reported.
While Cimillo’s case is an extraordinary example of how small BNPL loans can cause problems for a consumer, CR’s Bell says her situation underscores the potential risks of making the payment plans available to pay for virtually anything.
“The popular image of BNPL loans is that borrowers use them selectively to buy one or a few items at the same time,” he says. “But some users have been able to stack up multiple loans, similar to a revolving line of credit.”
“Some BPNL products allow you to spend up to a high credit limit, but unlike credit cards, they’re not regulated to require an assessment of ability to repay or to provide regular consolidated billing statements,” he adds. “The borrower might underestimate the risk of charging a lot of purchases to her account.”