How Buy Now, Pay Later Services Affect Your Credit Score

What is a credit score?

First things first: what is a credit score and why is it important as you get older? Well, it’s a number that represents your credit worthiness to a borrower - the higher your score, the better you'll be considered by financial institutions for loans. Some things to remember is just about anything you pay on the reg will be counted towards your credit score - your phone or electricity bill, car repayments, rent and your payment history that has led to debt.

Buy Now, Pay Later services can affect your finances

Nowadays, it’s free to check your credit score in case you’re a hot mess when forgetting to have money in your account for a Buy Now, Pay Later instalment withdrawal. You know, those services that put lay-bys out of business. Sometimes they’ll bite you in the ass with a late fee, cancel your account or limit you to how much you can spend with them. At the end of the day, if you don’t have the money in your account, you probably shouldn’t be adding things to your cart.

Don’t get me wrong, I’ve used it for massive expenses and those unexpected Christmas presents. Like hell no, I’m not buying a mattress and office chair outright. And sometimes bigger expenses call for it to be paid in instalments. 

The reality is, the chances of you buying something over installments is heaps more likely compared to purchasing it in one go. Why? Because four instalments sounds a lot nicer on the wallet. Even if it is only a new pair of Vans or dress for the races.

There’s no credit check when you sign up to these services but what’s scary is the late payments that can affect your credit score, inevitably affecting your chances of getting a loan if used frequently or irresponsibly. Don’t fret though - sometimes they won’t hold you accountable. They can choose to inform credit reporting bodies depending on the provider and severity of missed payments - so make sure to read the T's & C’s when signing up with one of these services. 

Long story short - don’t be silly with your money, pay on time and happy dayssss 👍

How to limit yourself

If you’ve got no self-control and need to settle down on the overconsumption, you can always set a limit with the service provider - check your settings or hit ‘em up with an email but always check yourself before you wreck yourself (bank account). I know how tempting it can be but limit your purchases - maybe you'll realise you don't need 'em anymore, the urge for the purchase has passed, or better yet they’ll be on sale?! You beauty.

Is a credit score really that important?

Now you’re probably thinking, do I need to build up a credit score? Old mate from the Barefoot Investor (Scott Pape, if you’re reading this, hmu) tells us that the safest thing to do is avoid credit cards at all costs. Many things in life are easier when you have a good credit score, but you naturally build one up on little things like paying your phone bill and subscriptions on time.

It’s always better to build up a credit score from scratch than to fix a weaker one!

If you’re applying for a loan anytime soon, maybe have a bit of a read into this but as long as you’re not being reckless with your dosh, don’t stress too much 💰