Can You Build Credit with Buy Now Pay Later Options

Retail and store credit cards have seen a decline in recent years. Much of this slowdown can be attributed to the rise of online retail and shopping, but some of this decrease can also point to rising inflation and retail prices. High initial prices can deter consumers from making a purchase.

 

Buy now pay later plans try to address these issues by offering payment plans with short repayment terms and lower (sometimes 0%) interest rates, but can they build credit like a secured credit card? Let’s take a look at the finer points of buy now pay later deals and how they affect your credit.

 

What is a buy now pay later plan?

A rising trend in retail and e-commerce, buy now pay later options offer short-term installment payments with little to no interest. Typically, the plans cover a period between two and six months, and interest rates are slim to none. Additionally, approval rates for buy now pay later plans are usually higher than traditional credit cards.

 

The finer points of these deals can vary. Some buy now pay later plans require at least a 25% down payment, and some retailers won’t offer these plans at all. So it’s important to understand that buy now pay later plans can vary from vendor to vendor.

 

Can I build credit with a buy now pay later plan?

How a buy now pay later plan affects your credit is determined by the BNPL platform the retailer uses to facilitate the sale. Many buy now pay later plans will require soft credit checks before you can apply for them which don’t harm your credit, but they also often won’t work towards building your credit even if you make on-time payments.

 

Some platforms, however, will report your payment history and activity to credit bureaus. This means that on-time payments can help you raise your credit, but a poor payment history will also hurt your credit. Unfortunately, almost all BNPL platforms will eventually send missed payments to a collections agency, where they will be reported to credit bureaus.

 

What should I watch out for with a buy now pay later plan?

Buy now pay later plans aren’t a fix-all solution to credit card debt or irresponsible spending. These plans can often give customers the impression they are spending less, but in reality, they may be spending more by adopting buy now pay later models.

 

As many BNPL platforms report your credit history, these deals may actually be worse opportunities for building your credit than a credit card, as they often allow larger purchases that you will have a tougher time paying off in the future.

 

Learning more about buy now pay later

Learning the finer points of these popular deals can help avoid a negative impact on your credit, and help you make smarter purchases for the future. Buy now pay later models can be helpful for customers if they’re used in the correct situations, even though their rise in popularity might make it seem like they make all purchases easier.