Not all Buy Now Pay Later (BNPL) companies run a credit check when you sign up for memberships, and these checks may not always affect your credit score. However, your BNPL activity could still make an impact on your credit history, which could affect your chances of seeing future credit applications approved.
How do credit scores and credit checks work?
Every time you borrow or repay money in Australia, your information is sent to credit bureaus and recorded in your credit file. This credit history is used to generate your credit score. Borrowers who pay back loans on time are more likely to have good credit scores, while those with defaults or bankruptcies in their credit history are more likely to have bad credit.
Banks, lenders and other credit providers use credit scores to quickly assess a borrower when they apply for a loan, credit card, or similar financial product. Borrowers with good credit are more likely to be approved, and may be offered lower interest rates or extra features and benefits. Borrowers with poor credit scores may have to pay higher rates and fees, or may see their applications declined.
Applying for credit too often over a short period of time can risk damaging your credit score. Having too many credit checks appear in your credit history can lead some lenders to think you’re desperate for credit because you’re struggling to manage your finances, and they may decline your application as a result.
How does BNPL affect credit scores?
There is some debate as to whether BNPL services should be counted as credit providers. At the time of writing, most BNPL services don’t need to conduct a formal credit check as part of their application process, though this could change in the future. This means that applying for BNPL is unlikely to directly affect your credit score.
A BNPL provider may still conduct a credit inquiry (sometimes known as a “soft” credit check), which is similar to when you check your own credit, but this won’t affect your credit score.
A few BNPL providers may still conduct a “hard” credit check when you apply, especially if you’re applying for a larger account limit, as this can help them assess your risk as a customer.
Your BNPL accounts may also affect your credit score in other ways:
- If you fail to make your BNPL repayments on time, once they’ve been overdue for a certain length of time, your provider will be obliged to report your late repayments to credit bureaus. This will appear in your credit history and may damage your credit score.
- If you have multiple BNPL accounts open in your name, a lender may choose to decline your credit application, as the lender may feel that you may not be able to afford your loan repayments alongside your BNPL commitments.
- Linking a credit card to your BNPL account could lead to your credit score being affected. If you miss BNPL repayments and end up with credit card debt, this could turn into overdue credit card debt, which will need to appear on your credit report.
