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does clearpay affect your credit score
does clearpay affect your credit score

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Does Clearpay Affect Your Credit Score

Let's look at how buy now pay later schemes like Clearpay can affect your credit.
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With hundreds of retailers across the UK now offering buy now pay later schemes, this has led to credit score damag for more than two million Britons.

Experts warn that the damage to people's credit scores could lead to them being rejected for mortgage applications and even unable to apply for a short-term loan.

Let's look at how buy now pay later schemes like Clearpay can affect your credit.

What is buy now pay later?

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. 

What is Clearpay?

Clearpay enables you to split your shopping purchase into four instalments. 

You make the first payment at the time of checkout, and the remaining three payments are spread out over six weeks, with one payment being due every two weeks.

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.

What happens if I can't pay?

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).

Can BNPL schemes like Clearpay impact my credit score?

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.

Does not paying Clearpay affect your credit score?

In short, yes it can. When using a credit card, store credit, or BNPL schemes like Clearpay, missing a payment can hurt your credit.

Failing to pay back what you owe - known as defaulting on your account - can be noted on your credit report and this can stay there for up to six years.

BNPL schemes like Clearpay can report missed payments to the main credit reference agencies so it's important to make your payments on time, just like you would with a credit card or personal loan. Paying on time can also improve your credit.

Does Clearpay affect getting a mortgage?

Before approving a mortgage, a lender must make an informed decision on your ability to pay.

Lenders will be able to see evidence of a borrower's buy now pay later borrowing on their bank statements, so it could still have an impact on the mortgage application.

In addition to this, BNPL schemes like Clearpy have the ability to submit your payment information to credit reference agencies, so late payments could really hurt your credit.

To obtain a mortgage and continue their home buying journey, borrowers must remember that all credit payments will influence their credit profile.

So handling your Clearpay account responsibly could help your credit and in turn, improve your chances of being approved for a mortgage.

Things to consider

Think about your budget and keep track of your debt obligations while you consider buying a home or refinancing a mortgage.

To avoid any late payments appearing on your credit report and potential late fees assessed by your BNPL supplier, make sure that all payments are made on time.

Certain BNPL schemes don't appear on your credit report, while others do.

It’s best to stay away from using payment plans, payday loans, or any other form of short-term financing for at least six months before applying for a mortgage, whether to buy a house or remortgage your home.

Additionally, check to see if you are paying off any outstanding debt on credit cards as quickly as you can, rather than just paying the interest and minimum required.

The dangers of BNPL debt

In a study conducted by Which.co.uk, more than half of shoppers believed using BNPL schemes had caused higher levels of personal debt, and two-fifths admitted they spend more than they normally would.

Another issue was that websites did not adequately describe the dangers associated with choosing to pay later.

More than half of those who responded to the study stated they would not have bought the item if they had known that BNPL was the default payment option since one in five felt the terms and conditions of the offer weren't properly displayed.

The study did discover, however, that many consumers favour BNPL over other kinds of financing. Compared to 15% who would pick a credit card, more than a third (35%) would choose to use BNPL.

Unsettlingly, one in ten customers claimed that they used BNPL because they had already used up their credit card limit.

How to safely use Clearpay

When used wisely, BNPL schemes like Clearpay can have their benefits. Here are a few tips on using Clearpay and similar schemes safely.

Setting up a limit on spending

Set a spending cap because you can easily struggle to keep track of these loans, especially since there are so many different plans. Set a cap on spending to prevent these from getting out of hand.

Use reminders

It might be challenging to remember when to pay what when you take out many loans from different lenders. Reminders might help you keep track of when you have repayments due.

Return any items you don’t want as soon as possible

If you ordered a variety of clothing items, for example, or want to try on a few different sizes before deciding which ones to keep, make sure you return them as soon as possible to ensure that your account balance can be updated in time before your next payment is due. 

Speak up

Do not keep the company in the dark if you have trouble making payments. They might help you with a payment plan to avoid additional late fees.

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