Can you use buy now pay later with bad credit?

Sometimes in life, just because you can do something doesn’t mean you should. Sure, you can wear Crocs to an interview. You can cook fish in the office microwave. You can respond to every email with a reply all. But listen—that doesn’t mean you should. Similarly, you can use buy now, pay later products with bad credit, but it doesn’t mean you should.

In this article, we’ll explain why you can use these products even if you might not be eligible for other types of credit products, as well as the credit risks involved with buy now, pay later services.

How buy now, pay later services determine eligibility

Buy now, pay later (BNPL) providers have identified that a significant number of people feel locked out from using traditional borrowing methods like loans and credit cards. They’ve also tapped into the very real discontent many consumers feel toward the fees or interest associated with those products.

By making their services available to many people who may not qualify for traditional credit products and by, in many cases, eliminating late fees and interest, BNPL services have built a loyal user base that’s growing every year.

Do BNPL providers use hard credit checks?

Sometimes, but it depends on the purchase. Traditional forms of borrowing usually require hard credit checks that can briefly damage your credit score. By comparison, most pay-in-three-months BNPL providers use soft credit checks, which do not impact your credit score. Providers also might use Open Banking data to check your current financial situation to make more accurate affordability checks.

However, some providers also offer payment plans for higher-cost items, which may be spread over a longer period like a year. For these big-ticket items, a hard credit check is often used to verify your eligibility.

Reasons why buy now, pay later can be attractive if you have bad credit

There are a handful of reasons BNPL is attractive if you don’t qualify for other credit products. Some of those are that:

• It could be a useful alternative to payday loans and high-interest borrowing: However, BNPL is mostly marketed for non-essentials like clothing, electronics, and home goods, rather than essentials like groceries.
• It provides an opportunity to build your credit score: BNPL providers only run a soft credit check. This means that it’s typically easier to get approved, and it doesn’t damage your score in the short term. Plus, now that BNPL payments are included in credit reports, they could potentially help you improve your payment history and build your credit score.
• BNPL offers savings on interest: Paying in three months can be attractive to credit card users who can’t pay the balance straightaway, but don’t want to get stuck paying interest on their outstanding balance. BNPL providers’ interest-free periods offer an attractive alternative in this scenario.

Overall, BNPL can provide some helpful options for people with bad credit. Additionally, if you make consistent payments, credit agencies can see this as evidence of responsible credit use.

Risks of using buy now, pay later with bad credit

If we’re being honest, buy now, pay later services clearly have few things going for them that are very attractive. However, don’t let that make you overlook the risks, which are very real, particularly if you already have bad credit.

• Credit score risk: Although some buy now, pay later providers don’t charge late fees, it doesn’t mean there’s no consequence for late payments. In fact, delinquent payments can be marked as defaulted after 90 days, which can severely damage your credit score for as long as six years. No sweatshirt is worth that.
• Fees and charges: Missed or late payments can incur charges. For example, Klarna charges £5 for payments that are seven days late. These charges can accumulate and increase your overall debt burden.
• Inflexible budgets: BNPL providers make things more affordable, which can entice you into making more purchases. While it’s small amounts each month, it can lead to a situation where every penny of your budget is earmarked. This can make you financially vulnerable if you’re faced with an unexpected expense like a car repair.
• Increased credit use: If you’re applying for another type of credit or financing, your BNPL use could negatively impact a lender’s perception of you. This is because if you’ve been using buy now, pay later services regularly, lenders may be cautious about your ability to make additional regular repayments.

Tips for Using BNPL Wisely

If you do decide to use a BNPL service, make sure you take steps to reduce any credit risks. Start with these tips:

• Only use BNPL for essential purchases that you know you can comfortably repay. Avoid impulse buys or making purchases simply because you can delay payments. And if you can do this… you may want to consider simply using a credit card and earning some rewards while you’re at it.
• Always read the terms and conditions. Look out for late payment fees or other penalties. Additionally, BNPL providers may perform hard credit checks depending on the purchase, so understand what you’re signing up for and how these checks might impact your credit score.
• Set up payment reminders or automatic payments to ensure you don’t miss payments. This will protect you from unnecessarily damaging your credit score. Remember, your payment history is the most important factor influencing your credit score, and a missed payment can be visible in your credit report for as long as six years.

Remember, BNPL is a form of credit, even if it doesn’t feel like it. If you find yourself over-reliant on these services, it could be a sign that you’re in financial distress.

The bottom line on using buy now, pay later with bad credit

If you have poor credit, buy now, pay later services can seem like a good option. And they could be. But they can also be a huge risk. It’s imperative that you use them wisely.

If you do decide to use a BNPL service, it’s important that you fully understand the terms, including what happens if you fail to meet payments. Additionally, you should only purchase items that you can comfortably repay so that you can manage your monthly payments responsibly.

Want to build your credit score in a safer way? Check out Pave. Pave’s credit builder accounts can help improve your payment history and boost your credit score. Plus, we’ll help you monitor your upcoming bills so nothing slips past you.

Want to check it out? Download the app today to get started!