I’m a credit expert – how can using credit including buy now, pay later for Christmas damage your credit score

CHRISTMAS can be an expensive time of year but borrowing cash to cover expenses can lead to a debt spiral.

Borrowing money isn’t always a bad thing – as long as you can afford to pay it back.

Clearscore credit expert Justin Basini explains that shoppers should borrow responsibly


Clearscore credit expert Justin Basini explains that shoppers should borrow responsibly

Plus, you should understand how much you’ll have to pay, as you may be charged interest or fees, meaning you’ll have to pay back more than you originally borrowed.

Used properly, you can even improve your credit score by using a credit card or taking out a loan.

But go wrong and you could end up in unmanageable debt and ruin your credit score.

But now, pay later (BNPL) has become ubiquitous and makes it easier than ever to get a cash-on-pay when shopping online.

These plans allow you to spread the cost of your purchases, with payments typically due one month after purchase, or in installments over a longer period.

BNPL is offered by thousands of leading retailers, such as Boohoo, Asos and H&M through companies such as Klarna, Clearpay, LayBuy and PayPal among others.

Each company offers different terms, but with credit available at the push of a button, it’s always a good idea to check what you’re doing first – otherwise you could risk damaging your account. its own.

“Buy Now Postpay service providers often run ‘light searches’ on a person’s credit report,” said Justin Basini, CEO and co-founder of ClearScore, a credit scoring and reporting app. before they use their service, instead of doing a more thorough search than a credit card or loan company does.

“This means they don’t get the full picture of whether someone can afford to pay back the money they’ve borrowed, which can lead to problem debt. “

For example, if you take out a loan or credit card, the lender will look at other debts you have to figure out what you can afford to borrow and pay off reasonably.

This is “hard to find” which means it also shows up on your credit file so other lenders can know that you’ve applied for credit.

With BNPL, there’s more to it than a light touch. “Soft search” means that a BNPL lender will look at your financial situation but not as deeply as other credit products.

They will usually do a light search if you choose to pay your bill for a month, but can do a hard search if you choose a longer time period, such as six months.

These soft searches also don’t show up in your credit history, so shoppers can use multiple BNPL providers at once, borrowing large sums of money as each provider can’t know them. how much is borrowing from each supplier.


Recently BBC’s Panorama investigation showed that one borrower was able to purchase more than £1,000 of clothing using different BNPL suppliers in a single day.

Campaigners have warned that this could leave people borrowing money insolvent and would struggle to pay it back.

When BNPL debt becomes a problem, it can lead to missing payments, which can affect your credit score in a negative way – something Many users do not know.

Justin said: “According to a recent ClearScore survey, 40% of people believe Buy Now Pay Postpaid is ‘safer’ than using a credit card, while nearly a third believe it won’t affect your business. to their credit score.

“In fact, if you don’t repay, BNPL providers may add a late fee to the amount you owe.

“And in the worst case scenario, they can transfer the debt to a collection agency.

“Missed payments will become a negative mark on your credit report, which can lower your credit score.”

Citizens Advice says one in 10 BNPL users have been referred to debt collectors, increased to one in eight among young people.

The charity found that there were no BNPL checks on leading retailers’ websites warning people they could be referred to debt collectors if they missed payments.

Instead, this is only flagged in the terms and conditions on a separate page.

Missed credit card refunds can also negatively affect your credit score.

If you use a credit card, you should always pay off your balance every month unless you have a 0% interest offer and spread payments over a number of months.

Otherwise, you may have to pay up to 18% APR. If you have a balance of £1,000 it will take you 18 years and three months to pay off the balance and you will have to pay an additional £1,204 in interest.

You should never borrow more than you can afford, and neither should shoppers shop around to see if there are better loan options available available.


Passing your debt on to someone else is usually a last resort and if you are struggling with repayment on BNPL or any loan you should talk to someone ASAP before it escalates.

Meanwhile, missing payments on your credit score can affect how much you can borrow in the future and the interest rates available to you.

So don’t stick your head in the sand, seek help as soon as you can.

Talk to your lender the first time and you can contact a debt counseling charity, such as Step change, Advice for citizens or National Debt Line for instructions

Justin added: “BNPL companies are not yet regulated by the Financial Conduct Authority (FCA) who hold financial services companies.

Companies will be subject to more stringent checks in the future, after the FCA announced it would soon regulate BNPL.

Dissatisfied shoppers can also complain to the financial ombudsman – something they are currently unable to do.

These changes will be more relevant to other loans such as credit cards and loans. But that won’t come until next year.

So if you’re tempted this Christmas to use BNPL or other credit then do so responsibly, Justin said.

“Never borrow more than you can afford and always repay on time. Think about what you’re really getting before clicking and reading the terms and conditions carefully.”

Debt charity StepChange recommends asking yourself the following questions when shopping online and considering using BNPL:

  • Is the amount needed to make the purchase within your weekly (or monthly) budget?
  • If BNPL is not available, would you still make the purchase?
  • Is what you are buying a necessity?
  • Can you wait for that item until you have some money to spend next time?
We’ve saved £129k in just 17 months of being £458k in debt – we clean up, cut down on meals and become VERY frugal

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Bobby Allyn

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