Consumer Credit, Debt, and Bankruptcy Blog

Pay-in-4 Plans

Credit reports will soon include “buy now, pay later” plans, also called pay-in-4 plans, because most of these plans charge debit or credit cards in 4 equal installments, typically every 2 weeks, but allow the shopper to take the product home after the 1st payment. Most of these purchases are small, such as for clothing. A few companies offering these services include Afterpay, Klarna, and Affirm.

These plans may offer a good way of establishing credit for people with little or no credit history or for people with bad credit trying to improve their credit score. Starting in 2022, credit reports will eventually include both positive and negative information, on-time payments, defaults, when the plan was opened, the scheduled payments, and how much the consumer actually paid.

Fannie Mae to Consider Rent Payments to Assess Creditworthiness

The Federal National Mortgage Association (Fannie Mae) was created by the federal government to help low- and middle-income people to buy homes. To further that interest, Fannie Mae is changing the standard for who qualifies for a loan by allowing people to use their record of rent payments as a means to establish creditworthiness. Because landlords do not regularly report to credit bureaus about rent payments, the borrower would have to allow Fannie Mae to access their bank accounts that were used to make the rent payments.

Fannie Mae estimates that 17% of the people who haven’t owned a home in the previous 3 years, and would not have qualified otherwise, will now qualify under the new standard. This will help roughly 20% of Americans who, according to the Consumer Financial Protection Bureau, have no or limited credit histories.

Source: FHFA Announces Inclusion of Rental Payment History in Fannie Mae’s Underwriting Process

Consumer Trap: Deferred Interest on Retail Credit Cards

Deferred interest is a new retail marketing gimmick by almost half of retail credit card issuers, promoted with special marketing terms such as special financing or same as cash if paid in full. It is a 0% or low rate if the balance is paid in full by the end of the promotional period. If the balance is not paid in full by that time, then interest will be charged retroactively on all purchases made during the promotional period. Even a single dollar remaining on the balance after the promotional period ends can lead to significant charges of interest. Considering that many retail credit cards charge a high interest rate — often 20% or more — the addition of deferred interest can add a significant amount to the bill.

By contrast, many promotions of 0% from reputable credit card companies do not charge interest retroactively. Instead, if the balance is not paid in full at the end of the promotional period, then interest only accrues on the balance thenceforth.

Some Notes on Credit Bureaus

Debt Buying Practices

A new study published by the Federal Trade Commission sheds some light on the debt buying industry:

New FTC restrictions on Debt Settlement Companies

New Restrictions on Debt Settlement Companies:

Note: In almost every case, it is better for debtors to file for bankruptcy under Chapter 7 or Chapter 13 than to use a debt settlement company. Bankruptcy offers many benefits that a debt settlement company cannot provide, including re-establishing your credit sooner. A debt settlement company offers no advantage over bankruptcy, but costs the debtor considerably more money. To learn more, see Bankruptcy — Table Of Contents.

New Rules for Credit Card Issuers

New rules regulating credit card issuers were approved by the Federal Reserve, the Office of Thrift Supervision, and the National Credit Union Administration. The following rules take effect in July, 2010:

Rules Aim to Protect Credit Card Users

Company Credit Cards can Hurt Authorized Users' Credit Scores if Paid Late

Company Cards Can Hurt Credit -

Many people, as authorized users, have company credit cards to pay for business expenses. Sometimes the people pay the monthly bills themselves, and sometimes, especially for smaller businesses, the company pays the bill. However, an authorized user's credit score can suffer if the card payment is late, even if the company pays the bill.