Does Buy Now Pay Later Affect Your Credit Score?

If you’re a frequent online shopper, you’ve likely come across the Buy Now, Pay Later (BNPL) option at checkout. BNPL is a type of point-of-sale financing that lets you make a purchase by paying in installments over time. There are different BNPL service providers in the market – each with its own set of terms and conditions. For instance, some BNPL lenders offer interest-free financing options with no down payment.

Since BNPL is essentially a type of short-term loan, you may be wondering how it could impact your credit score. Generally speaking, many BNPL programs do not report your payment history to the national credit bureaus, but failure to meet your payment obligations on time could be reported to a debt collection agency, which could end up hurting your score.

BNPL loans may not help you build credit

Your payment history on credit accounts can have a significant impact on your credit score. Take your FICO score for example – payment history accounts for 35% of your score. This is why keeping up with payments is so important when you’re looking for ways to build or improve your credit score.

Given that BNPL is a type of short-term loan, you may think that keeping up with these installment payments could be a way to help you build credit.

Here’s why this may not be the case: According to the Consumer Financial Protection Bureau, BNPL providers don’t typically notify credit bureaus about on-time payments, unlike other lenders. 

A few BNPL providers may let you opt in to reporting your payment history, but that's not common practice. That's why these point-of-sale loans may not be great credit-building tools. 

Can BNPL hurt your credit score? 

While many BNPL lenders don’t usually report your payment history, you should still stay on top of your payment obligations. BNPL loans can hurt your credit if you fail to meet your payment obligations. That’s because if your account becomes seriously overdue, the BNPL lender can turn it over to a debt collector, who can then report the delinquency to 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. 

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

Parting thoughts

If you’re hoping to build or improve your credit using BNPL, you may be able to find out if the lender will report your on-time payments to the credit bureaus by looking at the agreement (check before you sign). You can also contact them and ask directly. 

If the answer is no, consider exploring other ways to help you build credit. We have a few tips here.

Finally, this probably goes without saying, but credit scores aside, before taking on a BNPL loan – or any type of loan – it’s always important to think about whether you really need it, how much you can handle, and if you can keep up with the payments.