It's an exciting month for Bill Me Later, a new service that lets you shop online but pay for it (later, as the name suggests) with a check for any purchases that you make.
First came the Wall Street Journal story last week, touting the discounts and extended payment terms the company is offering through big retail partners this holiday shopping season. Apparently, the folks at Amazon are fans, because word got out this week that the retailer is taking a minority ownership stake in Bill Me Later.
Here's what's not so exciting for consumers who use Bill Me Later though: Doing so can damage their credit score.
It's hard to figure this out by reading the company's FAQ. At the moment, it says the the following:
Bill Me Later will review your credit report prior to opening your account. You must provide us permission to review your credit report when completing your request to become a Bill Me Later customer. Bill Me Later is a credit account that you can use to make purchases. Bill Me Later will review the current status of your account each time you make a purchase but your full credit report is not reviewed for every Bill Me Later purchase.
The average consumer will have little idea what this means. Some reviews hurt your credit score and some don't, and Bill Me Later doesn't explain which is which.
So here's an attempt at a translation, which I hereby suggest that Bill Me Later adopt.
Bill Me Later will review your credit report prior to opening your account. This review is what's known in the credit world as a "hard pull." Hard pulls happen when you apply for a new credit card too. Hard pulls have the potential to damage your credit score. You must give us permission to do this hard pull, or you can't use the service. Because we're billing you later, we're extending you credit. That's why we have to check your credit report ( just like a credit-card company would).
We'll also check your credit each time you make a purchase, but this will be something called a "soft pull," and soft pulls don't damage your credit score.
Is it unfair to pick on Bill Me Later for this, given that credit-card companies don't exactly make the whole credit-impact thing clear either? I don't think so. There's a general awareness among consumers that applying for and using a credit card has an impact on their credit report and credit score.
Bill Me Later, however, is a new service (a potentially interesting and useful one too) that doesn't quite look like anything that's come before it. So there should be no expectation that consumers will know how it works or that using it can impact their credit unless the company makes it crystal clear. So far, Bill Me Later hasn't done that.
The cynical side of me is willing to bet that Bill Me Later won't take my advice. Why? Because if they were completely forthcoming about what's going on here, fewer people would use the service.
I hope the company proves me wrong.
-- Ron Lieber
** Let us know what you think about Bill Me Later in our reviews section.
| Type | Today | Week Ago |
|---|---|---|
| 15 Year Fixed | 4.62%  |
4.67% |
| 30 Year Fixed | 5.15% | 5.15% |
| 1 Year ARM | 3.48% |
3.51% |
| 5/1 Year ARM | 3.62% |
3.68% |
| Type | Today | Week Ago |
|---|---|---|
| Line of Credit | 4.89%  |
4.88% |
| 10 Year Loan | 7.47% | 7.47% |
| 15 Year Loan | 7.61% |
7.60% |
| Type | Today | Week Ago |
|---|---|---|
| Interest Checking | 0.28% | 0.28% |
| Money Market/Savings | 0.38% | 0.38% |
| 12 Month CD | 1.13%  |
1.15% |
| 60 Month IRA CD | 2.40% |
2.41% |
| Type | Today | Week Ago |
|---|---|---|
| Cash Back Cards | 12.66% |
12.68% |
| No Annual Fee Cards | 12.08% |
11.97% |
| Reward Cards | 12.75% |
12.61% |
| Small Business Cards | 11.01% |
10.94% |
| Student Cards | 13.77% |
13.49% |
| Platinum Cards | 12.26% |
12.11% |
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We follow standard industry practice which is hard inquiry at the point the customer applies and soft inquiry for updates on existing accounts.
Regards,
Heather Fields
Bill Me Later, Inc.
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Thanks for clarifying that I had that right Heather -- I've removed my self-doubt from the post. Meanwhile, you know where to find us if you decide to rewrite the FAQ.
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I actually had a different reaction than Ron.
Ron's suggested revision might actually have the benefit of drawing in more consumers rather than turning them away.
The way that the FAQ is written, some consumers may assume that their credit is dinged each and every time they make a purchase. Drafting a more clear response would assuage that fear and encourage people who might otherwise have misgivings about Bill Me Later to use the service, much in the way that they might use a credit card.
We're all creatures of habit. It seems like Bill Me Later has everything to gain by reassuring consumers used to make credit card transactions over the Internet. Now that I'm clear on how it works, I may give it a shot over the holidays.
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Leave it to my brother, the moot-court champion and ace e-commerce lawyer, to come up with a reading of the original FAQ that I totally didn't see. Heather, you guys should put him to work.
He and I are in heated agreement on this though: The current FAQ just doesn't cut it.
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Good point David. Thank you.
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Ron, is there a critical number of "hard pulls" to hit before your credit score is damaged?
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it can happen with just one hard pull, i'm pretty sure. it doesn't always happen though. and because the score is a black box, you can't be sure when it's gonna happen. as a general rule, when you're months out from getting a mortage (including -- and this is important ) in between when you pre-qualify and when you close -- you just shouldn't apply for any new debt and should basically stop using your credit cards, just to keep your credit lines underutilized.
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BillMeLater needs to address more than just an inquiry affecting your score. The FAQ in no way clearly states if a tradeline with payment history is added to one's credit report by starting an "account" with them.
If, in fact, a tradeline is added to the credit report, then standard tradeline scoring rules examine the limit of an account compared to the balance of the account. If the limit is constantly only increasing to the exact amount of new purchases, then that tradeline would always be at 100% debt to limit ratio, which would hurt one's score, more than a one-time inquiry would. CapitalOne got in trouble for something similar to this because they were not furnishing the "limit" amount to the bureaus, so consumer's who had an account with them had lower scores becuase one of their tradelines would always look to be at 100% capacity of limit.
I hope BillMeLater responds to this, as it would determine if I or other possible consumers would pursue openining an account with them.
1)Does it appear as a tradeline?
2) If so, what is limit only increased by new transactions?
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I have not used this, but I have several friends and family that use it. According to them, It does not appear on your credit report at all. The only thing that ever appears is the credit inquiry. This can also look bad to future creditors. When you have a hard inquiry that does not show up as an account, it looks like you got turned down. I was debating using their service and this is the reason I have not. Please correct me if I am wrong.
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Actually, there are other problems with Bil Me Later. Today, I tried to purchase a computer online. I have had three years of experience with Bill Me Later, never had a late payment, and have excellent credit. I use the service very sparingly.
Still, I was turned down. When I called to ask the reason, the rep said you were turned down for two reasons: payment record and charging record. She acknowledged my payments were always on time, in fact, the record was perfect. She then checked my purchase history, and noticed that it was very modest and, in fact, did not present the type of pattern that usually triggered this flag. She stated that the typical unsatisfactory record was somebody who tried to make ten charges in a day. In fact, I had only made one small charge in the last month, and several modest charges over the last several months. She refused to provide more specific information as to why I had a purchase declined.
Bottom line: Bill Me Later is not providing the type of information required by the Fair Credit Reporting Act. In fact, they appear to be skirting the requirements of the law by resisting providing the most basic information about why they decline credit.
I spoke to the assistant to the CEO of CIT Bank, the owner of Bill Me Later, and she acknowledged that the real decisions are made by another company, 14 something, located in the Baltimore area.
Something is just not right with this company, and I know they are not giving out the kind of information that the law requires when they turn you down for credit.
Interesting that nobody has gotten back to me with an explanation....yet.
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