I came across a trio of articles recently that seem to overlap and connect with one another. The articles paint a picture for the economy and the accounts receivable management industry while also providing context about a hot-button topic — credit reporting.
The headlines of the three articles are:
- Americans Are Racking Up ‘Phantom Debt’ That Wall Street Can’t Track
- Accurate Credit Scoring is Essential to Combat Credit Delinquency
- Why Klarna does not report BNPL payments to US credit bureaus
Taken individually, the articles each provide important information that is relevant and insightful for debt collection professionals. Phantom debt is a reference to Buy Now, Pay Later transactions, which continue growing and which usually do not appear on consumers’ credit reports. More of these debts are being placed with collection agencies — 43% of consumers with BNPL debts say they are behind on their payments and BNPL has caused 28% of consumers to fall behind on other debts.
Klarna said in its article that it is not causing phantom debt and that it has a 99% repayment rate globally. It further made its argument by stating that only 4% of customers in the United States incurred a late fee last year. Klarna also claims that if BNPL data were incorporated into consumers’ credit scores, those scores would likely fall, not rise.
Coupling that information with the growing number of states that are enacting laws banning the reporting of medical debt on consumers’ credit report gets us to the third article — the importance of accurate credit scoring in combating credit card delinquency. Credit scores that are artificially high open consumers to more credit. If they are not able to manage that credit, they fall behind. Falling behind creates more financial problems and causes a lot of issues — for the consumer and for the country.
