Consumers have taken on a massive amount of credit card debt in 2022, rising to $841 billion in the first three months of the year.

But that's not the only way shoppers are spending these days. 

The popularity of "buy now, pay later," or BNPL, which allows consumers to buy an item on the spot and pay for it later in installments, soared during the pandemic. Now some consumers are realizing this type of credit could be a risky way to take on debt. And, unlike credit cards, BNPL can make it tough to get a handle on your credit outlook. 

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Payment history often not reported

BNPL companies generally don't report to the credit-scoring companies when consumers use these loans. That makes it a challenge for a lender to know how many loans a consumer has outstanding. 

"That makes a big difference in terms of how much you should loan," said Kenneth Lin, CEO of fintech company Credit Karma. "Oftentimes, a credit system is actually blind to how much you owe in the Buy Now Pay Later scenario."

Consumers with multiple BNPL loans with multiple payment dates may find themselves in a debt spiral. "That's when people get into deep trouble," Lin said.

Difficult to build credit history

"When it comes to your credit, it's all downside and no upside," said Matt Schulz, senior credit analyst at LendingTree. 

Since BNPL companies generally don't report positive payment history, "it's really risky because you're not able to build up your credit and show banks that you're credit worthy," he added. "On the other hand, if you slip up, a lot of times that mistake will get recorded and that can have a negative impact on your credit." 

About 35% of consumers said they were at least considering using a buy now, pay later loan last month, according to Lending Tree. Another survey found 42% of BNPL users said they'd paid late on one of these loans. 

The impact of late payments varies

Experts say BNPL lenders may handle late payments differently.

For some, you end up getting hit with fees. For others, they just lock you out of the service for the future and they won't lend to you again, Schulz said. Some companies will report delinquencies to the credit rating companies, while others won't.

Meanwhile, the Consumer Financial Protection Bureau has opened an inquiry into how BNPL lenders are using consumer data and reporting that information. "The problem is that when they're using buy now, pay later for more and more expenses, including groceries and other in store purchases, they can rack up a lot of debt," CFPB Director Rohit Chopra said in an interview with CNBC.

"The key piece is to make sure that we're not creating a system that…sends people into a spiral of debt that they ultimately cannot repay."

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