Do Buy Now, Pay Later Apps Hurt Your Credit Score?

by Lyle Daly | Updated July 25, 2021 - First published on May 23, 2021

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The answer depends on which app you choose and whether you make your payments on time.

When you're shopping online, you'll likely run into buy now, pay later (BNPL) apps. Instead of paying for a big purchase in full, you can use one of these financing plans to pay it off over time, often with a 0% intro APR offer. The Ascent's research found that buy now, pay later apps have rapidly grown in popularity, to the point where over half of Americans reported that they've used one. But before you sign up, it's good to know how a BNPL app can impact your credit.

There are a few ways that a BNPL app could lower your credit score. First, the service provider may run a hard credit check when you apply. It could also report your payment history to the credit bureaus. And if you default, that will likely be reported as well. You can learn more about each potential effect on your credit score below.

Applying for BNPL

Some BNPL apps check your credit file when you apply. If they do, this will put a hard credit inquiry on your credit file. You can typically find out whether a BNPL app does a hard credit check on its website.

A hard credit check decreases your credit score, but only by a small amount. The average consumer's FICO® Score (the type of credit score that's most widely used by lenders) drops by less than five points from one hard inquiry.

An important thing to remember is that multiple hard credit inquiries can take more points off your credit score. A single BNPL app won't make much of a difference. If you use four or five BNPL apps to make several purchases, then your credit score would drop much more. To guard your credit, it's better to use BNPL apps sparingly.

Your payment history with a BNPL app

A BNPL app may report your payments to one or more of the three consumer credit bureaus: Equifax, Experian, and TransUnion. These credit bureaus each calculate credit scores for you based on the information they have. Payment history is the factor that matters most in determining your credit score.

If you use a BNPL app that reports your payment history, this can either help or hurt your credit score. On-time payments are good for your credit. Late payments can lower your score quite a bit, but only if they're at least 30 days late. Payments made within 29 days of the due date are considered on time according to the credit bureaus.

Even though a late payment won't affect your credit unless it's past due by 30 days or more, you could be charged a late fee as soon as you miss a payment. To avoid extra costs, make sure you always pay by the due date.

Defaulting on a BNPL app

Just like with loans and credit cards, you can default on a BNPL app if you don't make your payments. While BNPL apps will generally give you a chance to get caught up, they'll eventually send the debt to collections.

When you have an account in collections, it almost always gets reported to the credit bureaus. This does a number on your credit, as it can cause a credit score drop of over 100 points. And it often takes years to rebuild your credit from this kind of issue.

Assuming you pay a BNPL app on time, it won't hurt your credit score much. It could put a hard inquiry on your credit file, but that will only have a minor impact. You only need to worry about a BNPL app damaging your credit if you pay at least 30 days late or default.

Keep in mind that just because your credit score will be fine doesn't mean you should jump into a BNPL arrangement. You'll still be taking on debt and adding another bill to pay. These apps can be helpful, but you should know how buy now, pay later works so you can make an informed decision.

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