Buy Now Pay Later: How It Impacts Your Credit Score

The Buy Now Pay Later (BNPL) scheme provides an easy option to buyers to make big ticket purchases where other traditional options, such as credit or debit card equated monthly instalments (EMIs) may not be available. BNPL allows buyers to make instantaneous purchase and divide the amount payable into smaller amounts over time, thus making the shopping affordable. While it is flexible and easy to pay, its use involves financial obligations, and depending on how you pay back, it can affect your credit score.

How It works?

BNPL enables consumers to buy instantly and pay later in instalments over a specified period. It is one payment option that customers can choose while finalising their payment during checkout on an online shopping platform. The approval is also instantaneous. The payment is then spread out into fixed instalments in the form of equated monthly instalments (EMIs) that get automatically debited from your linked bank account.

One benefit of BNPL is that it typically offers nil interest EMIs. However, there could be interest or late payment charges for delayed payments.

How BNPL Impacts Your Credit Score?

A strong repayment history can positively impact your credit score, and BNPL can help when BNPL providers report on-time payments to credit bureaus. Making BNPL payments on time consistently exhibits good credit behaviour, which can increase one’s credit score. It may be particularly useful for those with little credit history, thus enabling them to establish a good financial record.

Elsewhere, missed or late BNPL payments can harm your credit score, since lenders report defaults to credit bureaus. Also, unpaid BNPL debt can make it more difficult for the borrower to obtain future loans. Excessive BNPL will also negatively impact your credit score because a high credit utilisation rate will decrease your score and put you as a risky borrower to lenders.