Most popular BNPL services will report your activity to credit reference agencies, meaning your on-time payments may or may not boost your score. However, if a missed or late payment is reported, it could negatively impact your credit.
Additionally, some buy now pay later financing options require a credit check, which might leave a temporary mark on your report. That’s why you need to understand how they interact with your credit history before using them for purchases.
In this blog, we’ll break down when buy now pay later affects your credit score, how it compares to traditional credit cards, and tips to use it responsibly. If you're looking to build your credit score or just avoid harming it, you need to be aware of the facts so you can make informed financial choices.
Does buy now pay later improve credit scores? Let’s discuss.
What is Buy Now Pay Later, and How Does It Work?
As mentioned, buy now, pay later services allow you to shop online and split your payments into smaller, manageable amounts. They typically give you different payment options, including the option to pay in multiple instalments and deferring payment (typically within 30 days).
While buy now pay later services don’t always require a credit check, there are some options within these services, for example financing, that may involve one. Either way, they are widely used on many online stores, making shopping more flexible. However, even though BNPLs can make payments easier, it’s important to use them responsibly so you don’t miss payments, as that could affect your credit score.
Buy Now Pay Later Reporting Practices to Credit Reference Agencies
Buy now pay later services credit score impact depends on its reporting practices. In the UK, as of June 2022, one of the most common BNPLs started reporting some on-time and missed payments to credit reference agencies Experian and TransUnion, meaning that it may impact your credit score.
Additionally with some BNPLs using financing options, these also require a credit check that may appear on your credit report. Thankfully, short-term plans like "Pay in 3" or "Pay in 30 days" don’t have a hard credit check, meaning it won’t usually impact your credit, so long as you keep up to date with payments. That said, since policies can change, it’s best to check their terms often to avoid potential credit issues.
Does Buy Now Pay Later Improve Your Credit Score or Damage it?
Buy now pay later can impact your credit score, but that entirely depends on how you use it. Most payments through a BNPL service are reported to credit referencing agencies, meaning that on-time payments can positively increase your credit score, whilst late payments can damage your credit score.
Additionally, if you pick a financing option, it’ll involve a credit check, which may affect your credit if not managed correctly. That’s why it’s essential to use buy now pay later responsibly, which means paying on time and not overspending to help avoid negative credit implications.
If you’re looking to build credit, buy now pay later may or may not be the right choice for you. Instead, you could consider other options, like credit cards or loans from direct lenders that would report your positive payment history to credit reference agencies.
The Pros and Cons of Using Buy Now Pay Later for Credit Building
Here are the pros and cons of using buy now pay later to build credit.
The Pros:
Offers flexible payment options, making it easier to manage your purchases.
If you’re using financing plans, on-time payments may be reported, helping your credit.
Whilst all on-time payments are reported with most leading BNPLs, it may not improve your credit score.
Many of the common BNPL services don’t run a hard credit check, but be sure to check the terms and conditions before applying.
The Cons:
Financing options typically do have a hard credit check, which may impact your credit score.
Missed or late payments may be reported, which can damage your score.
Ultimately, if your goal is to improve your credit, you might want to play it safe with traditional options like secured credit cards or Salad loans that consistently report to credit reference agencies.
Best Practices for Using Buy Now Pay Later, Without Harming Your Credit
To use a buy now pay later service without harming your credit, you should always pay on time so there are no late fees and potential negative reports. You should also check BNPL service terms to see if your payment plan involves a credit check or reporting to credit reference agencies.
Additionally, try to avoid overusing buy now pay later services, as multiple purchases can lead to overspending and missed payments. Finally, you may want to monitor your credit report to track any impact the buy now pay later service might have.
If you’re using a financing option, treat it like a loan and make sure to budget accordingly. Overall, BNPL services can be convenient, but you have to use it responsibly to ensure it won’t hurt your credit score or cause financial strain.
For Fair and Affordable Loans, Choose Salad Money
Have you been asking the question, “Does buy now pay later improve my credit score?”. Whilst it can positively affect your credit score, there are risks of damaging it, especially if you miss a payment.
At Salad Money, we value your financial wellness. That’s why we offer fair and affordable personal loans to help you manage unexpected financial challenges.
If you need money urgently but have a low credit score, we can help.
At Salad Money, we make affordable loan options available for every employed UK citizen. As one of the UK’s leading online lenders, we understand that the credit score system isn’t always fair. That’s why we use an open-banking-based assessment to evaluate the financial situation of every applicant.
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