How can Buy Now, Pay Later impact your Credit Score

Buy-now-pay-later (BNPL) is not a unique concept. Recently, there has been a rapid increase in the number of people utilising short-term BNPL schemes.

Buy-now-pay-later (BNPL) is not a unique concept. Recently, there has been a rapid increase in the number of people utilising short-term BNPL schemes. Although catalogue retailers such as Littlewoods are less popular today, the recent demand for BNPL has invited new players to join the market. Companies such as Klarna, Clearpay, and Afterpay are just a handful of fintech’s that are providing BNPL options. In the wake of this resurgence, we explore how BNPL can impact your credit score while also discussing some practical advice around BNPL.

  • Does BNPL credit affect my credit score?

    Historically, credit reports have included some BNPL accounts, for instance, if you use catalogue retailers this will likely appear on your credit profile. However, until recently, short-term BNPL schemes (also known as “deferred-payment credit” accounts) have not been reported to credit reference agencies. This is now set to change.

  • What does this mean for my credit score?

    Credit reference agencies will now start to analyse short-term BNPL schemes and factor these into your credit report, therefore, if you use BNPL schemes, this will directly influence your credit score. Lenders use your credit profile and your credit score to determine whether you are eligible to a loan and to determine the rate of interest for a loan. Keeping your credit score as high as possible is very important, so keep this in mind if you do decide to use a BNPL scheme.

  • Wants. vs. Needs

    A straightforward and practical way to consider a spending decision is to decide whether the product that you have seen is a want or a need. One of the concerns surrounding BNPL and its popularity is that it can influence consumers to spend more money on impulse purchases, therefore it is always wise to question yourself. Using this rule of questioning a decision can be helpful, as it can ultimately save you a lot of money.

  • Consider setting reminders for payments

    Noting down your payment dates for BNPL can help you to avoid missing payments and incurring late fees. If you have a set date for repayments, consider creating a reminder on your phone that will prompt you to make your repayment. If you had some spare funds, you may also consider making an early repayment, if your BNPL provider has this option available. Direct Debits might be available with some providers, however, keep in mind that this is not an option for all providers.  

Prepare for the future

Preparing for your financial future is important, as unexpected costs can occur for all of us. Saving money is key to building your financial resilience, more information can be found here:

  • The information provided in this article is for guidance and educational purposes only. Police Credit Union Ltd. does not offer regulated financial advice. Please seek independent financial advice.

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