What Is Buy Now Pay Later, and How Does It Affect Your Credit?
You may have heard of Buy Now Pay Later (BNPL), but are you sure it’s right for you? You should know that these loans are unsecured and do not report to major credit bureaus. Additionally, BNPL providers do not perform a hard check on applicants and do not interact with credit bureaus. That means they do not report on-time payments to the major bureaus. So, does it affect your credit?
BNPL providers don’t report on-time payments to the major credit bureaus.
Some BNPL providers do not report on-time payments to the major credit reporting agencies. However, they must abide by the Fair Credit Reporting Act (FCRA) and provide form disclosures to rejected applicants. These disclosures are commonly referred to as “denial letters.” A recent Forbes Advisor/YouGov survey found that 27% of respondents missed at least one BNPL payment. Further, 11% of them missed more than one payment. The lack of positive information in credit reports is an important aspect of BNPL. While these services don’t build credit, they can negatively affect scores.
They are not an appropriate fit in the current system.
BNPL lenders have remained largely unreported to the credit bureaus despite these disadvantages. The credit scoring models that use the data to determine credit risk do not include BNPL accounts. Consequently, they are not an appropriate fit for the current system. For example, the BNPL data included in a consumer’s credit report would be unsuitable in the long run as it encourages the consumer to open too many accounts or spend too much money. It also risks reporting the BNPL data as risky, even if it has been responsibly used.
They don’t perform a hard check on applicants.
A key difference between a credit card and Buy Now Pay Later is that Afterpay does not charge interest. Instead, payments are spread over four installments. Because the payments are spread over four installments, the interest isn’t applied to your purchases. In other words, your credit score is not affected; moreover, after pay does not perform a hard check on applicants.
They don’t interact with the credit bureaus.
Consumers should be wary of Buy Now Pay Later (BNPL) services because they may do more than pull their credit score. In some cases, these programs perform soft credit pulls or skip the check altogether. Others may charge late fees and interest. There are also some hidden fees associated with BNPL plans, making these services more appealing than credit cards. Consumers should avoid using Buy Now Pay Later as a primary means of financing, as the bureaus may not be interested in the information.
Avoid these services until having a steady income.
The federal government is investigating buy now pay later services and whether they cause too much debt for shoppers. It has also been discovered that BNPL services harvest data from shoppers, which could affect their credit scores. Consumers should avoid these services unless they have a good credit history and have a steady income. It is important to protect their financial future. If you have a history of late payments, this can significantly impact your credit score.
The same laws as credit cards do not protect consumers.
Despite being a relatively new payment method, buy now pay later is not yet regulated by the Financial Conduct Authority. While merchants and companies promote them as payment plans, they are loans, and the same laws as credit cards do not protect consumers. If a bad experience with a buy now pay later company is the norm, many consumers will move on to a different credit card type.