Can I buy now, pay later and use apps like Klarna to improve my credit? MyWalletHero

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With a buy now pay later app, you can buy the things you need right now and pay the bill another time. But how do these apps work, and can they improve your credit score over time? Let’s take a look.

How does buying now, paying later work?

Think of a ‘Buy now, pay later’ app (BNPL) as a kind of store finance.

Essentially, you can buy something now and, well, pay for another day. Klarna, Clearpay, Laybuy and PayPal Credit are all examples of BNPL apps. Here’s how they work.

  • BNPL credit is offered at the point of sale.
  • Repayments are usually interest-free.
  • You can spread the costs over a few weeks or months. For example, Klarna gives you up to 60 days to pay the balance, while Clearpay gives you a few weeks.

You can pay in installments or delay the entire payment until the due date – it all depends on the provider.

Can a buy now and pay later plan increase my credit score?

Maybe, but it’s not the best way to do that.

Many BNPL providers do not carry out hard credit checks. Instead, they run soft searches just to confirm your identity and some basic information. While this can help you get credit, it also means that they usually don’t file timely payments with credit reporting agencies. In other words, you don’t just increase your credit score by making BNPL payments on time.

That said, some providers like Laybuy and PayPal Credit run full credit checks, so if you’re trying to build your score this might be an option for you.

Still, BNPL apps are not a quick fix. Even if you pay on time, you’ll need to use BNPL for a few months to see an improvement in your score – and remember, this is only if your provider records payments on time.

Are there any drawbacks to a buy now, pay later plan?

Yes. While BNPL apps can sometimes help you manage your credit, they can also hurt your credit score. This is why:

  • Missed payments can be filed with credit reporting agencies. This in turn lowers your credit score. The only exception is Klarna. At this point, they don’t report missed payments to credit bureaus, nor do they charge late fees.
  • If you request a purchase now, pay later app and they check your credit score, the search will leave a ‘footprint’ on your file. Other lenders can see this, which can affect whether or not to offer credit.
  • BNPL providers can pass your debt on to collection agencies, which can further damage your score.
  • You may be charged for late payment, and these charges add up quickly.

Also keep in mind that BNPL has a unregulated industrySo if you cannot resolve a dispute with your provider, you cannot complain to the Financial Ombudsman.

What happens if I take out too much credit?

As tempting as BNPL may be, it’s still credit. While a particular credit can actually help build your score and make it easier to manage your money, you may have too much of a good thing. Signs that you are overexerting yourself include:

  • Relying on credit cards or BNPL to live month to month
  • One or two payments are missing
  • Use all or most of your extra income to pay debt
  • Not having an emergency fund to fall back on for unexpected expenses

Debt and money worries can have serious consequences. In the long run, it can keep you from getting credit for the major purchases you really need, such as buying a home. Contact Citizen’s advice if you are in debt.

Do I have to use BNPL apps?

Well, there is nothing ‘wrong’ with using a ‘Buy now, pay later’ app. It’s fairly easy to get approval and there is often no credit check, so it’s helpful if you want to avoid credit inquiries.

In addition, making regular BNPL payments teaches you how to budget money and paying bills on time, which is a skill you need to maintain a solid credit score.

That said, missed BNPL payments usually affect your credit score, making it harder for you to get credit elsewhere.

It’s also pretty easy to get into debt as you can lose track of how much you’re spending. So before using BNPL, consider whether you are better savings instead for the items you want.

Take Away

If you keep track of your expenses and use BNPL schemes sparingly, they may be worth a look. However, they are not the best way to improve your credit score. Credit cards have the edge here, even if you have bad credit

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