Can Using Buy Now, Pay Later Improve My Credit?

It's estimated that BNPL service use will increase roughly 14%, year over year, from 2023 to 2024.² And expectations are that this fast and easy way to pay less up front when making an online purchase will continue to grow.

It’s easy to see why. Paying for a $500 television with four equal $125 payments under a BNPL plan – made biweekly or monthly – might be a lot easier to swing than having $500 debited in one swoop from a debit card, even if the plan charges a small fee or a low interest rate. It may also seem easier and more practical than using a credit card when you have yet to establish the credit score typically needed to land a credit card with low interest or a generous 0% introductory APR period.

In the past, the ability to report BNPL payments to the three major credit bureaus – Equifax, Experian, and TransUnion – was spotty at best, and sometimes only happened when payments were missed. The holdup? Until now, existing credit scoring models have not been designed to support the frequent payment and transaction data associated with buy now, pay later – such as biweekly payments. This requires developing new solutions that factor in BNPL without having an unwarranted effect on existing scoring systems.³

But that’s all changing, with each major credit bureau tweaking its system to allow BNPL payments to be listed in consumer credit files. That means making on-time payments through a buy now, pay later service could soon help you improve your credit score.

Equifax and Experian have each launched new reporting systems that will make it routine for BNPL providers to report users’ payment history.^4,5 That means your track record of making payments on a BNPL purchase will begin to show up in both your Equifax and Experian credit reports – and therefore be used to calculate your credit score. Meanwhile, TransUnion has also expressed plans to incorporate BNPL payments into consumer credit files sometime in a couple of years.⁶

Your track record making payments on loans and credit card bills accounts for 35% of your FICO credit scores.⁷ If you consistently pay bills on time, that excellent habit will help you build a solid credit score whether you use BNPL services or not. But if you make a habit of not paying on time – or not paying, period – the hard truth is that it’s going to hurt your score.

And late or missed payments seem to be an issue for many online shoppers who use buy now, pay later solutions. About 42% of BNPL users have been late with a payment and incurred a fee.⁸

 
Hurt credit scores aren’t the only potentially negative financial effect of late or missed BNPL payments – these occurrences also typically trigger penalty fees, which can be costly.

Making it easier to pay for big-ticket items is an undeniable lure of BNPL. But “easy” can also lead to problems, if you’re not careful. These tips may be able to help you get the most out of the opportunity to buy now and pay later:

• Be a mindful online shopper. Don’t let BNPL be your gateway loan to common online shopping mistakes, like impulse buying. Focusing your spending on needs before wants may help you shop smarter.
• Make sure BNPL purchases fit in your budget. If a BNPL purchase would throw your budget out of whack, that’s a warning sign. You do have a monthly budget, right?
• Only take on what you can manage. Folks juggling multiple loan payments are more likely to miss a payment.⁹ It may be financially wise to only make as many BNPL purchases as you can manage at any given time, logistically and economically – after all, it’s possible not every payment plan will have the same due date.
• Set up alerts for a week before payment is due. Even if you have autopay set up, it might help to make sure that your bank account has enough cash to cover the upcoming payment. The on-time payment may help build your credit, prevent late-payment fees from your BNPL provider, and keep you from triggering an overdraft fee at your bank. Triple win.