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does buy now pay later affect your credit score
does buy now pay later affect your credit score

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Does Buy Now Pay Later Affect Your Credit Score?

If you use BNPL schemes, your credit score will be impacted because credit reference agencies will now begin to analyse short-term BNPL schemes and factor those into your credit report.
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The idea of Buy Now Pay Later (BNPL) is not new. Recently, the number of consumers using short-term BNPL programmes has increased significantly.

Despite the decline in popularity of catalogue stores like Littlewoods, recent demand for BNPL has allowed new competitors to enter the market. Some of the fintech companies that offer BNPL services include Klarna, Clearpay and Afterpay. 

In light of this, we look at whether Buy Now Pay Later may affect your credit score.

What is Buy Now Pay Later?

With Buy Now Pay Later, you can stretch the cost of your purchase over a number of weekly payments without incurring interest or having to pay it off all at once. The term "point of sale credit" is also used to describe some payment plans that give you up to 12 months to pay, instead of just 30 days.

It implies that you can avoid using your overdraft. Buy Now Pay Later doesn't have any additional costs, in contrast to credit cards or store cards. When you reach checkout, the approval process is almost instant.

You've probably heard of the major companies that offer Buy Now Pay Later: Laybuy is available at JD Sports, Clearpay offers the service to M&S, and Klarna works with thousands of retailers including ASOS, Peloton, Superdry, and Samsung.

The cost of the credit is covered by the retailer, and companies that offer Buy Now Pay Later services are paid a percentage of the sales that their services facilitate.

How much does BNPL cost?

In general, you won't incur interest if you pay back the whole amount of what you purchased within the grace period. This is because there is typically no interest at these times.

When using the buy now, pay later option wisely, you can put off paying for a purchase in full for a few months without accruing any interest. If you pay off your debt before this period expires, even if it's just one day prior, many large companies won't charge you any interest.

Alternately, some programmes let you spread the cost out over a longer time frame, but a higher interest rate may be applied.

Does Buy Now Pay later affect credit scores?

In the past, some BNPL accounts have been listed on credit reports; for instance, if you shop at catalogue merchants, it will probably appear on your credit profile.

Short-term BNPL programmes, commonly referred to as "deferred-payment credit" accounts, have not, however, previously been reported to the three major credit bureaus (Experian, TransUnion, and Equifax). This is about to change.

How does this impact your credit?

If you use BNPL schemes, your credit score will be impacted because credit reference agencies will now begin to analyse short-term BNPL schemes and factor those into your credit report.

Your credit profile and credit score are used by lenders to assess your loan eligibility and calculate the interest rate. If you do choose to use a BNPL scheme, keep in mind that maintaining a high credit score is crucial.

Should I use BNPL?

Identifying whether something is a want or a need is a practical way of choosing whether or not to make the purchase. It is always a good idea to question yourself before you simply spend money, mostly because one of the main drawbacks of BNPL is that it may cause consumers to spend more than they can afford,  making impulsive buying decisions.

This rule of always second-guessing your choices can be useful because it will ultimately help you save a lot of money.

Avoiding missed payments

Worried about missing payments and incurring late payment charges? It’s a good idea to keep a note of your payment due dates, and better still, set a reminder on your phone. 

See if your BNPL provider provides the option to make an early repayment, too. It's a good way of paying off your debt quicker, if you have some extra money one month. 

Alternatives to BNPL

When used properly, Buy Now Pay Later is a simple way to get something without having to spend money right away. But you might also achieve this in other ways.

For instance, you may apply for a credit card that offers interest-free financing on purchases, which would allow you to spread out the expense of buying things over a few years without having to pay any interest.

A credit card has the advantage over BNPL in that it may be used at most establishments, allowing you to stretch the expense of multiple items as opposed to only one.


How will BNPL accounts affect my credit score?

In order to determine your creditworthiness, lenders often consider a number of factors, such as your payment history, the amount you have borrowed, and if you have recently applied for any other credit.

Overspending on credit and not making payments on time are likely to be seen adversely, as with any sort of credit. However, if you've handled credit effectively in the past, this will probably be seen favourably.

Why am I not eligible for BNPL?

Because of the way Buy Now Pay Later works, it is a sort of credit because you are borrowing the item's price. This means that before choosing whether to approve your application, buy now pay later companies might check your credit score.

Buy Now Pay Later credit is probably not available to you if your credit is poor. Learn more with our guide to the reasons why businesses reject credit applications.

Before submitting an application for Buy Now Pay Later, it is wise to check your credit score to see if there are any issues you can resolve to raise your rating.

Does BNPL affect credit scores?

Not at the moment. While BNPL accounts are due to start appearing on credit reports shortly, the information will not initially be factored into credit scores.

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