What is buy now pay later credit?
Buy now pay later (BNPL) credit is a way for you to buy goods and services now and pay for them later. This credit is usually interest-free and often available for online purchases. It’s also increasingly available in high-street stores.
There’s nothing new about BNPL. But there’s recently been a rapid increase in the number of people using short-term BNPL. Typically, with these deals you don’t have to pay for goods for up to three months after you’ve bought them, and often you can pay back the money in instalments. With longer-term BNPL you often have up to 12 months before you have to start paying for the goods.
Like any form of credit, if you manage BNPL responsibly it can be a useful way of spreading the cost of things you buy. You need to make sure you don’t borrow more than you can afford to repay and that you make any agreed payments on time and in full. If you miss payments this could result in penalty charges and affect your credit record
Does BNPL credit affect my credit score?
Credit reference agencies like Experian now include details of short-term BNPL transactions in your credit report. But this information will not initially be factored into credit scores. This is to allow credit reference agencies and lenders time to fully analyse this new information and update their credit scoring systems.
Why are short-term BNPL accounts being added to credit reports?
It’s important that lenders have a full picture of all your credit commitments. This helps them accurately assess your financial circumstances and your ability to manage any further borrowing
Some people only have a limited credit history. This can make it hard for them to get affordable credit. Including short-term BNPL accounts on credit reports could help strengthen their credit history, provided they manage this credit well.
When will I see short-term BNPL accounts on my credit report?
BNPL lenders can now share this information with credit reference agencies so you may see BNPL information on your credit report now depending on which providers you use.
What information is included in each BNPL transaction on my credit report?
It’s the same sort of information as is listed for any other credit you have. It includes when the transaction occurred (that’s when the account was opened), the monthly repayments, the current balance and how you’re managing the payments.
For regular users of short-term BNPL credit, if you’re repaying each purchase independently and within three months, each purchase should appear on your credit report as a separate, short-term ‘deferred payment credit’ account.
If you fall behind with your payments this is recorded. If you fall behind with your payments for 90 days or more then the transaction may be reported as ‘defaulted’. When this happens, the account is typically passed to the lender’s debt collections team or an outside collections firm. A default will stay on your credit report for six years.
Are BNPL searches visible to other lenders?
Yes. Each time a lender carries out a credit check on you because you’ve asked for credit, a new credit-application search is likely to be registered on your credit report. BNPL searches will be visible to other lenders but will be excluded from your credit score for 12 to 18 months. This is to allow credit reference agencies and lenders time to fully analyse this new information and update their credit scoring systems.
We keep all searches on your credit report for one year.
When will lenders start seeing BNPL transactions on their credit checks?
BNPL lenders can now share this information with credit reference agencies so your lenders may see BNPL information on your credit report right now, depending on which providers you use.
How will BNPL transactions affect my credit score in the future?
Lenders typically look at several factors to assess your creditworthiness including your payment history, how much you’ve borrowed and if you’ve taken out other credit recently.
As with any type of credit, borrowing beyond your means and missing repayments are likely be viewed negatively. But if you’ve managed credit well in the past this is likely to be viewed positively.
When will deferred payment credit transactions start affecting my credit score?
Not this year. Once the information is added to credit reports, it’s likely to take 12 to 18 months for credit reference agencies and lenders to update their credit scoring systems.
However, the information will be visible to lenders so they could take this into consideration.