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Buy Now Pay Later services and your credit score


Why it's important to manage your Buy Now Pay Later spending habits.

Buy Now Pay Later services (BNPL) can be a great option when you really need that amazing outfit for a last minute party, or just want to budget out payments instead paying all at once. But while they can be a tempting alternative to saving up your hard earned cash first, it’s smart to consider the impacts BNPL services may have on your credit score, which is critical in determining whether you may be accepted for a mortgage or personal loan.

BNPL services give you the option to get what you want now and pay later. On the other hand, depending on the BNPL service that you’re using, you could find yourself paying fees instead, such as account keeping fees, payment processing fees or establishment fees. Most services will charge you a late fee if you don’t pay on time. For some BNPL services this can start at $10, which may not seem like much. However, it’s important to keep an eye on this so it doesn’t come back to bite you down the track and end up impacting your credit score.

BNPL services can also potentially impact your credit score in a few other ways. One main factor is having repayments that stretch out over a long period of time. Banks may consider BNPL payments as ongoing, so expenses for that new PlayStation that will be paid off in 2 months, could be assessed as if they were yearlong expenses, which could be thousands of dollars you aren’t actually spending. Because you don’t typically close your BNPL account once you’ve paid your dues, sometimes it can be hard to prove to banks that those expenses aren’t ongoing.

If you are thinking of buying a house, or taking out a personal loan within the next 6 months or so, try and avoid using BNPL services so you don’t end up in a pickle. If you can’t avoid using them, be sure to declare any purchase amounts in your loan application. Missing this step could result in approval delays, having your borrowing capacity reduced or even having your loan knocked back - and nobody wants to deal with that!

BNPL services are convenient and can be rewarding, but it definitely pays to be aware.

This article is intended to provide general information of an educational nature only. It does not have regard to your objectives, financial situation or needs and must not be relied upon as financial product advice. Before you act on this information, you should consider whether it is appropriate for your circumstances. We do not recommend any third party products or services and we are not liable in relation to them. Information in this article is current as at the date of publication.

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