Does Buy Now Pay Later Affect Your Credit Score?

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When you want to improve or build your credit score you may be on the lookout for financing options that could help, and buy now pay later may seem to fit the bill.

After all, these point of sale loans let you use mini payments for online and in-store purchases, just like loans and credit cards, and those can help you build credit.  

So here’s the surprise: Buy now pay later financing may not help you build or improve your credit score, but it could hurt it. 

Why point of sale financing may not improve your credit score

The three credit bureaus put the most weight on payment history – the pattern of making (or missing) payments – when calculating credit scores. This is why keeping up with payments is so important when you’re looking for ways to build or improve your credit score. 

So you might be thinking, “Great, keeping up with buy now pay later payments could be a way to boost my credit score!” 

Here’s why this may not be the case: BNPL providers don’t often notify credit bureaus about on-time payments, unlike other lenders. 

Some BNPL providers may let you opt-in to reporting or automatically report payments for certain APRs or terms – but for the most part, they don’t, which is why these point of sale loans may not be credit-building tools. 

But they can still affect your credit score. 

Can BNPL hurt your credit score? 

Most point of sale financing companies treat missed payments like they treat on-time payments; they generally don’t let credit bureaus know (unless it’s one of the exceptions mentioned in the previous section). 

This sounds amazing, but it’s not permission to sleep on BNPL. Overdue payments could damage your credit if your BNPL account goes to a collections agency and the agency tells the credit bureaus. 

It’s unclear whether it takes one missed payment or several to get booted to collections, but it’s probably not worth pushing off what you owe. 

Experian, one of the three credit bureaus, lays out why on its site: “Accounts that get to the collection stage are considered seriously delinquent and will have a significant and negative impact on your credit report.”

This is a pretty big deal because credit scores can affect things like apartment leases and loan APRs. 

Recap: Can you build credit with buy now pay later?

If you’re hoping to build or improve your credit using BNPL, you may be able to find out if they’ll report your on-time payment habits to the credit bureaus by looking at the agreement (check before you sign). If you don’t see this info, you can try reaching out and asking them directly. 

If they won’t, you may want to consider another type of lender, like a credit card company, that does share this info with the credit bureaus (as long as their fees and APRs fit your budget). 

This probably goes without saying, but credit scores aside, when it comes to debt, it’s always important to consider first why you’re taking it on, how much you can handle and if you can keep up with the payments. These last two elements are the essence of what it means to be able to manage debt, which is what credit scores are about.

This article is for informational purposes only and is not a substitute for individualized professional advice. Individuals should consult their own tax advisor for matters specific to their own taxes and nothing communicated to you herein should be considered tax advice. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of Goldman Sachs Bank USA, Goldman Sachs Group, Inc. or any of their affiliates, subsidiaries or division. Goldman Sachs Bank USA does not provide any financial, economic, legal, accounting, tax or other recommendation in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.  Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA or any its affiliates. Neither Goldman Sachs Bank USA nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.

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