Does ‘Buy Now, Pay Later’ Affect Your Credit?

Written by Kim PinnelliReviewed by Nathan Brown, CFP®Updated: 4th May 2022
Share this article

Disclaimer: This post contains references to products from one or more of our advertisers. We may receive compensation (at no cost to you) when you click on links to those products. Read our Disclaimer Policy for more information.

You’ve likely heard of buy now, pay later by now. It’s in every store on online checkout screens, but what most people don’t know is how does it affect your credit?

Understanding how ‘buy now, pay later’ affects your credit is important before you jump in headfirst and get caught up in this new payment option.

Understanding Buy Now, Pay Later

Buy now, pay later plans allow you to buy something now, but pay for it in installments down the road. It’s similar to layaway except you get to take the items home with you (or get them shipped to you right away) rather than waiting until you pay them off.

Typically, buy now, pay later plans require 25% of the purchase total upfront (at checkout) and you pay the rest in 25% increments every 2 weeks, paying the total off in 8 weeks total. Keep in mind that every company operates differently.

Some buy now, pay later companies to offer longer terms, stretching payments out over 12 – 24 months. The typical ‘pay in 4’ model doesn’t incur interest or fees if make your payments on time. The longer terms, however, usually have interest and fees, so always read the fine print.

>> More: See the Best Personal Loans

Does Buy Now, Pay Later Require a Credit Check?

Most buy now, pay later services do not require a hard credit inquiry, but there is typically asoft inquiry.

Here’s the difference.

A hard inquiry shows up on your credit report and dings your credit score a few points per inquiry. A soft credit check doesn’t show up on your credit report and doesn’t hurt your credit score, but it still allows creditors to see your credit and make a lending decision.

If you apply for any longer terms with a buy now, pay later plan, chances are they will pull your credit because you are borrowing money for 3 – 24 months versus 8 weeks.

Do Buy Now, Pay Later Services Report to Credit Bureaus?

On average, buy now, pay later services don’t report to the credit bureaus IF you make your payments on time. This means you don’t get credit for your good credit habits. But, if you miss payments and accrue interest, they might report it to the credit bureaus in an effort to get your attention to pay them.

However, most companies including Affirm and Klarna, report longer term installment loans to the credit bureaus. This means if you take anything other than the 4-installment program, it could get reported to the credit bureaus.

The credit bureaus are also on the horizon of creating a way for BNPL services to report all short-term loans to the credit bureaus for more accurate reporting.

>> More: What Happens If I Default on a Personal Loan?

How Buy Now, Pay Later Services Affect Credit Scores

If the BNPL service reports to the credit bureaus, a missed payment can hurt your credit score significantly. Your payment history is the largest part of your credit score. If they don’t, your credit score could still be affected. Here’s how.

If you miss your payments long enough, the BNPL service will likely send your account to collections. Most collection companies report to the credit bureaus to get your attention and give them leverage so that you’ll pay what you owe. If you have a collection on your credit score, it could cause it to drop dramatically.

Is Buy Now, Pay Later Bad for Your Credit Score?

Typically buy now, pay later doesn’t affect your credit score. If you’re using the traditional pay in 4 model, it most likely won’t show up on your credit report unless you use a service like Sezzle which does report to the credit bureaus.

But, if you take on pay now, pay later programs that you can’t afford, it can be bad for your credit score. We never recommend taking on something you can’t afford.

What Happens If You Miss a Payment?

Most BNPL services charge late fees and interest if you miss payments. They give you the program with the agreement that you’ll pay the money back in the appropriate installments. If you void this agreement, they can charge fees and interest and possibly report it to the credit bureaus.

>> More: What Credit Score Do You Need for a Personal Loan?

Bottom Line: How Buy Now, Pay Later Affects Your Credit Score

In general, buy now, pay later doesn’t affect your credit score, but that doesn’t mean it won’t. The best way to ensure it doesn’t hurt your credit score is to only use the payment method when you know you have the funds available to pay the loan as agreed.

Don’t’ use it as an extension of your credit and think you’ll just figure it out as you go. Any loan that goes unpaid is bad for your credit, especially if it ends up with a collection agency.

Keep Reading:

Kim Pinnelli
Kim Pinnelli

Kim Pinnelli is a Senior Writer, Editor, & Product Analyst with a Bachelor’s Degree in Finance from the University of Illinois at Chicago. She has been a professional financial writer for over 15 years, and has appeared in a myriad of industry leading financial media outlets. Leveraging her personal experience, Kim is committed to helping people take charge of their personal finances and make simple financial decisions.