Buy Now, Pay Later (BNPL) & Credit Score Impact: Survey Reveals 72% Drop

You may have heard of “buy now, pay later” services – a way to split purchases into multiple payments – but you may not be aware of the possible damage to your credit scores that comes from missing a payment.

A joint Credit Karma/Qualtrics survey has found that 42% of Americans have used some sort of “buy now, pay later” service, sometimes referred to as a BNPL.

Of survey respondents who’ve used “buy now, pay later” options, 38% reported they’ve missed at least one payment. And 72% of respondents who said they missed a payment also reported seeing a decrease in their credit scores afterward.

How does ‘buy now, pay later’ work?

“Buy now, pay later” isn’t a new concept — that’s how credit cards, mortgages and anything else that runs on credit works. However, over the past few years, fintech companies have sprung up offering “buy now, pay later” all over virtual checkouts or in apps in a fresh way. Companies offering this option include Affirm, Afterpay, Klarna and Sezzle.

Typically, BNPLs offer shoppers the option to split what they owe into smaller, equal payments spread out over the course of a few weeks or months, often without interest. If you decide to use the service, the company will generally run a soft credit inquiry on you before deciding whether to loan you the money. Unlike a hard credit pull, a soft credit check doesn’t affect your credit scores.

Although soft pulls don’t hurt your credit, missing a payment to a “buy now, pay later” company might. These companies can report late payments to consumer credit bureaus, which can affect an individual’s credit scores. Additionally, some BNPL services also charge late fees.

Tips for managing ‘buy now, pay later’ purchases

Think about whether you can afford the full price of the item

You know your budget better than anyone. The absolute last thing you want is to buy something and then miss a payment. You could end up with late fees and a ding to your credit scores.

Ask yourself if you’ll really be able to afford whatever it is you’re trying to buy, especially in light of any other obligations you might already have.

Another question to consider: Is this item a necessity? If it is, then a BNPL might give you the flexibility to buy something you need sooner than you’d otherwise be able to. If it’s something you want instead of need, consider waiting to buy until you’ve saved up for it.

Make sure you make your payments on time

Two good ways to help ensure on-time payments: reminders or autopay.

Set an alarm or a create a recurring calendar event for every payment you owe as soon as you hit the “buy” button. Having a reminder can help keep you from missing a payment by accident.

If you’re in the mood to automate, you could try autopay instead. Many banks allow you to set up an automatic bill payment, which means you don’t have to remember to pay the BNPL company. Just set it and forget it.

One caveat: If you use autopay, make sure that you always have enough money in your account to cover the payment. If you don’t, you could accidentally overdraft your account and end up owing overdraft fees.

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Methodology

On behalf of Credit Karma, Qualtrics conducted a nationally representative online survey in December 2020 among 1,038 American adults to understand how many people had used a “buy now, pay later” service and the effects on credit.