“Buy Now, Pay Later” (BNPL) services offer payment plans that have been rising in popularity, allowing customers to spread the cost of purchase out. But, is there a catch to using these services?
Buy now, pay later (BNPL) products are a form of credit.
Buy now, pay later providers will divide the cost of your purchase, usually bought through shopping online, into equal interest-free payments. They give you the power to buy things now but pay from them later – as the name would directly indicate. They do require a quick application, but will not result in a hard credit pull.
These products often do not charge interest, have low fees, and are easy to qualify for – but, is it all too good to be true? Are these services typically reported to the credit bureaus; meaning they can affect your credit score?
Although these service providers do not usually report your on-time payments, they could impact your credit. For example, many of these providers will report payments that are late or missed. However, these services are often easy to qualify for and since they do not use a hard credit pull, you may be able to qualify even if you have bad credit.
Will using BNPL help me build my credit?
In short, the answer to no; in fact, on-time payments are not reported to the credit bureaus and therefore will not show up on your credit report. You cannot use these services to build your credit or demonstrate your ability to use credit responsibly. However, as stated earlier, they may report missed payments, which will negatively impact your score.
However, because these services do not use a hard credit pull, they will not impact your score just for using them. Remember, most of these services will not report your on-time payments to one of the major credit bureaus – meaning, they will not impact your credit score for the better.
For more options about rebuilding credit, click here to see how we can help.
The exception
If you want to use these services to build credit, it may be difficult. Be sure to read all the terms and conditions to see if they report one of the credit bureaus. However, many of the most common buy now, pay later services, such as Afterpay and Klarna, will not report to the credit bureaus for on-time payments.
Whether or not these loans can build credit is rather confusing. Some will report to the bureaus and some will not, others only report some of their loans to credit bureaus. A good example of this is the BNPL service, Affirm. Affirm does not report their 0% APR loans, but for other loan types, they will.
Keep up with your payments
Always pay back these short-term loans on time. Missing a payment will not only result in extra fees but these late payments are often reported to the credit bureaus. Buy now, pay later services will not build your credit, but can actually hurt it.
Choose when you use these services wisely. We recommend only using BNPL providers for necessary purchases. Be sure the payments will fit into your monthly budget.
In addition, routine missed or late payments may be sent to debt collections. If this happens, it can be detrimental to your credit score. It is important to note that these late payments can stay on your credit report for up to seven years.
The bottom line
Buy now, pay later services typically will not help you build your credit. Be sure to use these services responsibly, as they can hurt your credit score if used irresponsibly. Make your payments on time and make sure these payments fit into your budget.
If you’d like to explore how we can help, try Cambio today.
