How Does Buy Now, Pay Later Affect Your Credit Score?

Didn’t realise that buy now, pay later loans like Klarna can affect your credit score? You’re not alone. 

With so many retailers and online shops now offering a buy now, pay later option, it’s not surprising that their popularity has more than quadrupled since 2020. But recent data from Pion’s Youth Trend Report shows that 33% of Gen Z didn’t realise that BNPL schemes like Klarna can actually harm your credit score. 

There’s no getting away from how expensive it is to just LIVE at the moment, so BNPL is unlikely to go anywhere soon. But it’s worth knowing everything that’s involved with these loans so that you can be as informed as possible when it comes to your spending. 

Read on to find tips on what you need to know about buy now, pay later loans, what happens if you miss a payment and how it affects your credit score. 

In this article:

• How does buy now, pay later work?
• Does buy now, pay later affect my credit score?
• What happens if you miss a payment?
• What do I need to know about BNPL?

How does buy now, pay later work?

Buy now, pay later, or BNPL are types of credit that you can use to buy products or services but pay for them at a later date or in instalments. You’ll see it a lot online as lots of ecommerce shops now offer BNPL, but it’s also becoming popular on the high street too. 

Short term BNPL is becoming a more popular way of paying, with Klarna becoming a household name for a lot of us. Short term BNPL is generally paying in instalments over three months or so, but as the name suggests, it’s paid back pretty quickly. 

Long term BNPL is when you spread payments out over a longer period of time, like 12 months, or even defer payments till then. It can be useful to spread the cost of payments to make them more affordable, but it can be a slippery slope where a lot of people miss payments, or borrow more than they can afford. Like any type of credit, you need to keep on top of it.

Does buy now, pay later affect your credit score?

So here’s the thing. While BNPL can be a good way of managing your spending, some providers will send this data to your credit reference agencies, like Experian. So far, it looks like the short term BNPLs only appear as ‘soft checks’ instead of ‘hard checks’, which means that while they’re on your credit report, they won’t appear to outside lenders. 

Hard checks can take place if you choose financing options which spread payments over longer periods of 6-36 months. You can find out more about hard vs soft credit checks and what they mean to break it down further. 

But, it’s an ever changing landscape, and with the popularity of BNPL schemes increasing, there’s more chance of regulation and hard checks even on short term borrowing.

With this being said, remember that BNPL are loans. If you miss a payment on any loan, it’s likely to negatively affect your credit score. This can have a knock-on effect if you need to apply for a mortgage or any other type of finance in future. 

We have a whole post on how to improve your credit score if you need a little help in that department. 

Which credit agencies will your BNPL provider report to?

Will extending the due date of my Klarna affect my credit score?

If you use BNPL like Klarna responsibly and pay back your debt on time, then this can have a positive impact on your credit score, as it shows you can manage debt well. But if you start extending the due dates of your Klarna repayments, this can negatively impact your credit score. 

Managing your money is no easy task, but setting a budget can help you prioritise paying off any outstanding debt before you get stung. 

What happens if you miss a payment on your buy now pay later?

A lot of BNPL providers have started to include late fees if you miss a payment. You could pay around a £5-6 late payment fee, which are mostly capped up to around £25 depending on which provider you use. While it may not seem much, if you start to miss a lot of payments then it’ll soon add up, so you’ll end up paying a lot more than you spent on the item originally. 

As mentioned, you will also face a negative impact on your credit score if you start missing payments. This is even more important as your credit score affects whether you can be accepted for things like a mortgage. So negative scores are really not something you should ignore. 

What do I need to know about BNPL?

There’s no doubt that millions of people in the UK are using BNPL to help manage their spending. But apart from the impact on your credit score, what else do you need to know about it?

It’s an unregulated industry

There’s been a lot of chat about regulating the buy now, pay later sector, but so far, nothing’s actually been actioned. The government even published proposals for draft legislation, but it’s been sat since February 2023. 

This means that BNPL providers don’t have to conform to existing rules about promoting financial products, you can’t complain to the Financial Ombudsman about them, and you have no protection for big purchases like you would with a credit card. At the moment it’s a bit of a financial Wild West, which means you don’t always know what you’re signing up for.

BNPL spreads payments, you won’t get anything cheaper

The point of BNPL is that you’re spreading payments in weekly or monthly instalments, but you won’t get any kind of actual savings from this. If you miss a payment or are late, you could actually end up spending more.

You can now get it in some shops as well as online

We always think of BNPL as an online thing, but retail shops are starting to pick up on it. You’ll usually have to scan a QR code and give your name and contact details, but it’s another way people can access these loans. 

Don’t spend what you can’t repay

This is the most important part: don’t spend what you can’t repay. If you find yourself relying on BNPL providers for non-essential spending, then you could find yourself spiral quite quickly into debt. 

BNPL can be a great way to build your credit score if you repay on time, but making sure you keep control of your finances should be your priority. 

Before you delve into the world of buy now, pay later, it’s always worth checking to see if there’s a student discount for what you want.