Buy Now Pay Later, commonly referred to as BNPL, has gained significant popularity in recent years.
If you’re anything like the average consumer, you’re juggling dozens of BNPL payments from different providers, for different amounts, on different schedules, out of different accounts, with different terms and conditions, and different fee schedules.
On top of the mental gymnastics of keeping up with all of that, if you regularly use PayPal Pay in 4, Klarna, Afterpay, Affirm, Sezzle, Zip, and more, you may have found yourself pondering… are all these payments good or bad for my credit score?
Keep reading as we debunk some common myths surrounding Buy Now Pay Later, and what impact it has on your credit score.
Debunking the Myths
Debunking Myth 1: Buy Now Pay Later Providers Conduct a Credit Check
Most BNPL providers generally do not conduct a traditional credit check for every user. Unlike traditional credit applications, such as applying for a credit card or a loan, BNPL providers typically focus more on evaluating factors like income and transactional data to determine your eligibility for their services.
Instead of relying solely on credit history, BNPL providers often assess your ability to make payments based on other criteria. Individual providers may have their own internal risk assessment processes, which may include verifying your identity or conducting a soft credit inquiry (a soft credit inquiry does not impact your credit score, unlike a hard credit inquiry that occurs with some credit applications.)
Debunking Myth 2: Buy Now Pay Later is the Same as a Credit Card
Contrary to popular belief, BNPL providers do not function in the same way as credit cards. When you use a BNPL service, you’re essentially entering into an agreement with the service provider or the retailer. In most cases, these services do not involve a credit check or impact your credit score directly, however as previously mentioned, they may verify your identity or run a soft credit check. Hence, your creditworthiness is not always a determining factor for eligibility.
Debunking Myth 3: Buy Now Pay Later Can’t Harm Your Credit Score
When used responsibly, BNPL providers are unlikely to harm your credit score, but they definitely can if you don’t make your payments on time. Failure to make timely payments or defaulting on your obligations may result in penalties, late fees, or potentially being sent to collections, which can have negative consequences for your credit.
Tips for Using Buy Now Pay Later Responsibly
Budget accordingly
Before using a BNPL service, assess your financial situation and ensure you can comfortably meet the repayment obligations without compromising your overall budget.
Make timely payments
Treat your BNPL payments as any other financial obligation. Make payments on time to avoid late fees or penalties, and maintain a positive repayment history.
Limit usage
Avoid excessive reliance on BNPL services. Using them sparingly and for essential purchases can help you manage your finances better.
Track and plan
Keep track of your BNPL purchases, payment due dates, and the total amount owed. Proper planning will help you stay organized and avoid any surprises. You can manage, track and pay all your Buy Now Pay Later in one place with Cushion! ✨
