Buy-now-pay-later accounts will now hit your credit score

BNPL accounts, now a common way to buy stuff, are going to start showing up in credit reports and on credit scores. This can be a good thing or a bad one, depending on your spending and paying habits.

With a buy-now-pay-later account, you can get the item immediately and pay for it over several months. It’s the reverse of a layaway plan, under which you make payments but don’t take the item home until you’ve paid the last dollar it cost. The costs are paid by the retailer, meaning that there’s no interest due. The accounts are also usually opened without a “hard credit check,” which is the kind that shows up on your report and tends to bring down the credit score.

All of this can make BNPL an attractive deal for someone with low credit, such as just before or when emerging from bankruptcy, when borrowing money can be more difficult. There’s no question that these accounts are cheaper in the short run than a secured credit card. It can also be dangerous for anyone who isn’t good at budgeting and can’t afford to keep up with the payments. While these are debts that can be wiped out in bankruptcy, remember that filing for bankruptcy again won’t be possible for years.

Transactions on BNPL accounts are going to be included in all three major credit reports, probably by the end of 2022. This means that paying on time is now going to help those scores go up, but it also means that scores will go down every time one of these accounts is opened, and also when payments are late.

If you want to buy now and pay later, remember that you will have to pay eventually, and include the monthly cost in your budget to make sure you don’t forget. This is an opportunity, but all opportunity has a downside. If you’re struggling with debt right now, contact us for a free consultation.