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One of the most easily accessible forms of credit, Buy Now, Pay Later (BNPL) schemes are offered by hundreds of retailers across the UK. In fact, according to data from the Financial Conduct Authority’s (FCA) 2023 Financial Lives Survey, 14 million of us used BNPL at least once in the last half of 2022.
However, not paying bills on time or in full, and taking on unmanageable debt, has had a negative impact for many shoppers. Research conducted by Populus on behalf of comparison site, Compare the Market, found that the credit scores of over two million UK adults have been damaged following their use of BNPL schemes. This is because finances can easily get out of control when you have multiple BNPLs to repay each month.
The result? Experts have warned that the damage to people’s credit scores could lead to them being rejected for mortgage applications or other forms of borrowing, and even unable to apply for a short-term loan.
Signing up for a Clearpay account is relatively straightforward and shoppers can also sign up during the checkout process. Clearpay is available to permanent UK residents over the age of 18 years with a valid address.
With buy now pay later (BNPL) schemes, shoppers can spread out the cost of a purchase over several weeks or months, usually interest-free.
This is also now one of the most popular choices at checkout points.
Companies like Clearpay give customers the option to spread out payments if they are shopping at well-known retailers online and in-store, like Marks & Spencer and Asos.
The term BNPL also refers to other, more traditional payment options like catalogue credit and store cards.
It is estimated that one in five people have used BNPL schemes over the last year and out of those, 20% of shoppers said their credit scores have been negatively impacted.
Clearpay enables you to split your shopping purchase into four instalments.
Payment one is made at checkout then payments two, three and four are made every two weeks, spreading out over a period of six weeks in total.
It's easy to sign up for a Clearpay account and shoppers can also sign up during the checkout process. Clearpay is available to permanent UK residents over the age of 18 years with a valid address.
If you can't make your Clearpay payments you will be prevented from making any further purchases with Clearpay until you've settled the outstanding balance.
You will have until 11 pm the next day to make your repayment before incurring a late fee.
If you still can't pay within seven days, a further late fee of £6 will be added to your account (a maximum of £24 in late fees can be added to your account).
If you follow the rules of your BNPL plan, it won't hurt your credit score.
However, Clearpay, and others, may report missed payments to a CRA (credit reference agency), that can place it on your credit file.
Experian, known for being one of the largest credit reference services in the UK, was questioned about whether individuals should avoid BNPL programmes.
They emphasised the fact that these strategies, when utilised properly, won't harm your credit score and, in some situations, may even improve it.
"It's always vital for individuals to thoroughly check what they're signing up for", according to an Experian spokeswoman.
For instance, if you borrow money and then don't pay it back as agreed, your credit report may contain negative information that lowers your credit score.
Retail credit can, however, genuinely help consumers strengthen their credit history and increase their score if utilised wisely and paid back on time.
In short, yes it will. When using a credit card, any type of store credit, or a BNPL scheme like Clearpay, missing a payment has the potential to hurt your credit rating.
If you don’t pay back the money you owe (commonly referred to as defaulting on your account), the lender can report this to the credit agencies. This can result in a note on your credit file for up to six years. It’s therefore worth keeping in mind that your credit rating will benefit from payments that are made on time.
Before approving a mortgage, a lender must make an informed decision on your ability to pay.
As lenders will be able to see evidence of your BNPL borrowing on your bank statements, it could still have an impact on your mortgage application.
In addition, BNPL schemes, like Clearpay, have the ability to submit your payment information to credit reference agencies, so late payments could really hurt your credit rating.
To obtain a mortgage, it’s also important to remember that all credit payments will influence your credit profile. In fact, mortgage lenders will consider your BNPL payments when running your affordability checks to ensure you can manage all your monthly outgoings. This means it’s especially vital that you handle your Clearpay account responsibly. By doing so, over time, you can help improve your credit rating and, in turn, improve your chances of being approved for a mortgage.
When you’re thinking about buying a home or remortgaging, financial preparation is key. In the months leading up to your potential purchase, look at your budget and keep track of your debt obligations, so you know what you need to pay and when.
Don’t miss any payments either, as they could appear on your credit report along with any late fees a BNPL scheme might charge. It’s worth noting here that some BNPL schemes will appear on your credit report, while others won’t, but it’s best to err on the side of caution and always make your repayments on time.
When it comes to applying for a mortgage, it’s also a good idea to avoid short-term financing, like payday loans, and ensure you’re paying off any outstanding debt on any credit cards you have as quickly as possible. Remember, if you just pay the interest and only make the minimum payments, your debt will cost you more and it’ll take longer for you to repay what you've borrowed.
It’s important that you’re clear on the terms of any BNPL scheme before you sign up, so you understand what risks come with this kind of credit. A study conducted by Which.co.uk found that more than half of shoppers believed using BNPL schemes had caused them higher levels of personal debt, with two-fifths saying they spent more than they normally would.
So, how can you protect yourself from falling into debt when using a BNPL scheme such as Clearpay? As we mentioned earlier, making sure you read and understand the terms and conditions of your agreement is crucial. Some BNPL websites don’t always explain their rules clearly or in a simple way, so if you’re unsure, seek guidance and consider if you really need the credit in the first place.
Remember that lots of small BNPL debts can soon mount up and become unmanageable to pay off. With one in 10 of those surveyed saying they turned to BNPL because they’d already reached their current credit card limit, ask yourself if you really need the item or if you can perhaps save up for it instead.
When used wisely, BNPL schemes like Clearpay can have their benefits. Here are a few tips on using Clearpay and similar schemes safely:
Since there are so many different BNPL plans available with varying terms and conditions, keeping track of this type of borrowing can be difficult. This is even more important if you have multiple BNPL accounts that have the very real potential of mounting up. By setting a cap on your spending, you can help prevent any BNPL schemes and credit you may have from getting out of hand.
When you have multiple loans, it might be challenging to remember exactly what you need to pay and when. Setting reminders could help you keep track of when your repayments are due.
If you order multiple items of clothes, or want to try on a few different sizes first, make sure you return the ones you don’t want as soon as possible. This can help ensure your account balance can be updated in time before your next payment is due.
Don’t keep the company in the dark if you’re having trouble making your payments. They may be able to help you arrange a new payment plan with the BNPL provider, so you can avoid incurring additional late fees.
