IF you’re one of the millions of shoppers who use Buy It Now, Pay Later services, a MAJOR change to your credit report could affect your finances.
Buy Now, Pay Later (BNPL) is a type of loan that allows you to make a purchase but delay paying for it.
With it, shoppers can spread the cost of their purchases over monthly installments – and it’s popular because it’s interest-free.
But from this month, those purchases will start showing up on your credit report with one of the UK’s three main credit reference agencies, TransUnion.
The other two major credit reference agencies – Experian and Equifax – are also planning to include BNPL payments in the records later this year.
And buyers will need to be aware of how these changes will affect them, as it may prevent you from borrowing money in the future.
Sarah Coles, Senior Personal Finance Analyst at Hargreaves Lansdown is part of The Sun’s Squeeze team, a panel of experts here to help you through the worst cost of living crisis in decades.
She reveals what you need to know about the changes to BNPL – and how you can improve your credit score.
If you’re worried about making ends meet, struggling to pay off debt, or unsure how to best manage your money, get in touch with us by emailing [email protected]
You might have trouble getting a loan
BNPL transactions will be recorded on your credit file for the very first time from this month, meaning any missed payments will be recorded.
These will be seen as red flags for lenders – who might see you as a risk to lend money to, Sarah said.
“Anything reported to agencies will stay on your file for up to six years.
“So when you apply for any other type of loan – or even something as simple as a mobile phone contract – they will be able to see those missed payments and that could work against you,” he said. she stated.
If you have a mark on your credit report that you believe is incorrect, you can dispute it and have it removed.
It could help you if used wisely
You may not realize that using BNPL services can help improve your credit rating – if used wisely.
Using credit responsibly — which ideally means paying off any debt in full each month — shows lenders that you can be trusted with money.
If you make all your repayments on time and don’t exceed your credit limit, lenders will be able to see that you are borrowing responsibly.
“It can improve your credit score when the data is included in your credit report,” Sarah said. “However, that doesn’t mean you can go wild with BNPL.
“You should always think very carefully if you really need the item right now and if you can afford all your refunds.
“Now is not the time to borrow more than necessary.”
Three ways to improve your credit score
This big BNPL reshuffle is a good opportunity for you to check your credit report.
It’s important to do this from time to time to spot any inaccurate or outdated information that could impact your score.
To do this, contact the three credit reference agencies to check your file.
You can get a free statutory credit report from each of the credit reporting agencies, but you’ll have to pay to see your full file.
Register on the electoral lists
Proving where you live can boost your credit score.
This means you’ll want to register to vote – you can do this online and it should only take five minutes.
“Make sure your credit reports show you’re on the voters list where you live, which proves your address,” Sarah said.
This can help lenders confirm your identity – and show you have a stable home address.
Check to see if your credit report is linked to someone you lived with or shared a financial product with.
For example, if you had a joint bank account with a former partner or roommate, be sure to “disassociate” yourself from it by contacting the bank.
“If you’re no longer financially tied to them, make sure the agencies know about it, or their bad habits could hurt your ability to borrow,” Sarah said.
Build your story
It’s not just a bad credit report that could hurt your score.
Having NO credit history means you will likely have a low score as well.
That’s because lenders won’t be able to tell how well you’ve managed credit — because you didn’t get any.
So while it may seem counter-intuitive, it’s actually a good idea to have a credit card and use it once in a while – just make sure you use it wisely, clearing the balance by full each month.
“You will need to keep a record of repayments – which is harder if you can’t find anyone to lend you,” Sarah said.
“You can use a credit card designed for people with bad credit, but you have to be absolutely certain that you pay it off in full and on time each month or you’ll do more harm than good.”