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Does Buy Now Pay Later Affect Your Credit Score?

Have you heard of Klarna, Afterpay or other Buy Now Pay Later services? These services allow customers to buy products in instalments and pay for their purchases over time. They have become increasingly popular over the past few years and are commonly used by online shoppers, particularly young people.

If you've ever used one of these services before, you may be wondering if it could impact your credit history. In this blog post, we'll explore how Buy Now Pay Later services affect your credit score and what information is included in each transaction.

What is Buy Now Pay Later?

Buy Now Pay Later services allow customers to purchase and pay for items over time, usually in instalments. The idea behind these services is to make shopping more accessible and affordable, particularly for those on a tight budget. The most common forms of Buy Now Pay Later services are offered by third-party providers such as Klarna, Afterpay and Affirm, but many retailers also offer their in-house financing options.

How Does Buy Now Pay Later Affect Your Credit Score?

Many people believe that using Buy Now Pay Later services can negatively impact their credit reports. However, this isn't necessarily the case. The main credit reference agencies like Experian now include details of short-term BNPL transactions in their credit checks, but this information will not initially affect credit scores. This allows credit bureaus and lenders time to fully analyse this new information and update their systems to deliver proportionate credit reporting.

It's worth noting that if you have multiple late or missed payments, this could negatively impact your credit rating. Late payments are recorded on your credit report and can stay there for up to 6 years. You might even hear from debt collection agencies. Therefore, it's important to ensure that you can afford to make the repayments before signing up for any Buy Now Pay Later options. Make sure your payment history is clean and keep your credit score straight.

How Are BNPL Services Different to Credit Cards?

While Buy Now Pay Later services may seem similar to credit cards, there are some key differences. Credit cards generally have a higher credit limit and longer repayment periods, whereas Buy Now Pay Later services usually require lower payments over a shorter period. Additionally, credit cards charge interest on unpaid balances, whereas many Buy Now Pay Later services offer interest-free periods.

However, it's worth noting that while Buy Now Pay Later services may not charge interest like credit providers, they can charge late payment fees. It's important to read the terms and conditions carefully before signing up for these services to avoid any surprises.

What Information Is Included in Each BNPL Transaction on My Credit Report?

Each Buy Now Pay Later transaction that appears on your credit report will typically include details such as the date of the transaction, the amount borrowed, the length of the repayment period and the amount paid on time. Any missed or late payments will also be recorded and potentially referred to a debt collection agency. As mentioned earlier, this information is not initially factored into your credit score, but is used by major credit bureaus to build a picture of your borrowing habits over time in their credit check.

In conclusion, using BNPL credit can impact your credit report if you fail to make the repayments on time. However, if you make your payments on schedule, these services are unlikely to negatively impact your credit score. Ultimately, if you're considering using a Buy Now Pay Later service, it's essential to make sure you can afford the repayments and that you understand that they could impact your credit score.

More Information

What is Buy Now Pay Later?

Do late payments affect your credit score?

What is a credit line?

Check out our other great content in our Info Hub, with articles about the different types of credit products, money management tips and help with saving money!