Buy now, pay later schemes have become increasingly popular in recent years, offering consumers the ability to purchase goods and services and pay for them later in instalments, often with little or no interest, making them attractive options for those on a tight budget.  While this can be a convenient option for many people, it’s important to be aware of how these schemes can impact your credit rating.

Firstly, it’s important to understand how buy now, pay later schemes work. Generally, these schemes allow consumers to split the cost of their purchase into several interest free instalments. Some providers may charge a small fee for this service, while others offer it completely free of charge.

While this may sound like a good deal, it’s important to remember that any form of credit has the potential to affect your credit rating.  Many people aren’t aware that when you apply for a buy now, pay later service, the provider will perform a credit check on you.  This check will leave a mark on your credit report, which can impact your credit score.

In addition, many people are unaware that late last year, credit institutions started to report your conduct on these services.  If you miss a payment, or fail to make a payment on time, this can also affect your credit rating.  Your provider may report missed or late payments to credit reference agencies, which will be recorded on your credit report and can lower your credit score.  This can make it harder for you to get approved for credit in the future, such as a personal loan, credit card or a home loan.  On top of that, lenders are now taking into consideration how much you are spending on these services, or any credit limits you have in place with them, when assessing your ability to service a loan, which in turn, may impact the amount you can borrow for a home loan.

It’s also worth noting that using buy now, pay later schemes can impact your ability to budget effectively. While the ability to spread the cost of a purchase over several months can seem appealing, it’s important to remember that yous till need to pay for these items eventually.  If you’re not careful, you could end up with multiple payments due at the same time, which can put a strain on your finances.

So, what can you do to minimize the impact of buy now, pay later schemes on your credit rating? Firstly, make sure you only use these schemes when necessary and when you know you’ll be able to make the payments on time. Always read the terms and conditions carefully and make sure you understand any fees or charges associated with the service.

It’s also a good idea to check your credit report regularly to ensure that all information is accurate and up-to-date. If you do miss a payment or make a late payment, contact your provider as soon as possible to discuss your options. They may be able to offer you a payment plan or an extension, which can help you avoid damaging your credit rating.

In conclusion, buy now, pay later schemes can be a convenient option for many people, but it’s important to be aware of the potential impact on your credit rating. Make sure you use these schemes responsibly and always pay on time to avoid any negative impact on your credit score and be aware that these schemes will now be taken into account when lenders are assessing how much you can borrow for a home loan, whether that be for a purchase or refinancing.