Does Buy Now Pay Later Affect Your Credit Score?

Updated: April 08, 2024 Author:

Quick Answer: Buy now pay later is a form of credit and can affect your credit score. Historically these types of transactions have not been included on personal credit reports and have therefore not affected credit scores. As of 2023 buy now pay later transactions and agreements are included on your credit report.

    What is buy now pay later?

    Buy now pay later is a credit agreement that allows you to purchase an item today and pay for it in the future. It is a very common way to spread the cost of large items like furniture and electronics by paying in instalments. You will find buy now pay later offers online as well as on the High Street, and in many cases the credit is interest-free. 

    Terms vary with some freeing you from the need to pay within the first 90 days, while others spread the cost over 12 monthly instalments, the first of which is due on the day you take delivery of the items. 

    Why won’t I immediately see buy now pay later affect my credit score? 

    Credit reference agencies have requested time to fully analyse the impact of adding buy now pay later to credit reports. This is to allow them to modify their scoring systems where appropriate, and in the process to make sure everyone is treated fairly and transparently. While these types of transitional periods can cause confusion, they will result in a much fairer system as a result of detailed analysis. 

    Why are buy now pay later agreements being added to credit reports? 

    This has resulted for two reasons. Firstly, there has been a marked rise in the number of agreements taken out each year. If lenders are to be able to accurately calculate the risk of lending to any given borrower, they need to know how many such agreements they are party to.

    Secondly, adding buy now pay later agreements to the credit scoring process will actually help those with only limited credit. By demonstrating an ability to consistently meet repayments and reduce debt levels, these individuals can strengthen their credit history. 

    What type of information will be collected? 

    Buy now pay later is like any other form of credit and will be treated the same way. The date and amount of each transaction, the outstanding balance and your historical record of meeting repayments under the terms of the agreement will be collected. 

    It is important to note that if you fall behind on your repayments for any reason by 90 days or more, you will have defaulted on the agreement. This will be marked on your credit report for six years and can significantly affect your credit score. 

    When will a buy now pay later agreement directly affect my credit score? 

    The relevant data is currently being added to the credit reports of everyone in the UK who has these types of credit agreements. Lenders will have access to this information and credit reference agencies have requested 12-18 months to adjust their scoring systems so they can recalculate scores accordingly.