IF you’re one of millions of shoppers using buy now, pay later services, a MAJOR credit report shake-up could be about to affect your finances.
Buy now, pay later (BNPL) is a type of borrowing which lets you make a purchase, but delay paying for it.
With it, shoppers are able to spread the cost of their shopping out over monthly instalments – and it’s popular because it’s interest-free.
But from this month, these purchases will start appearing on your credit report with one of the UK’s three major credit reference agencies, TransUnion.
The two other major credit reference agencies – Experian and Equifax -are also looking to include BNPL payments on files later this year.
And shoppers will need to be aware of how these changes will affect them, as it could stop you from borrowing money in the future.
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Sarah Coles, senior personal finance analyst at Hargreaves Lansdown is part of The Sun’s Squeeze Team, a panel of experts here to help guide you through the worst cost of living crisis seen in decades.
She reveals what you need to know about the changes to BNPL – and how you can improve your credit score.
If you’re worried about making ends meet, are struggling to pay off your debts or don’t know how best to manage your cash, get in touch by emailing [email protected].
You could struggle getting a loan
BNPL transactions will be logged for the first time ever on your credit report from this month, and that means any missed payments will be recorded.
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These will be seen as red flags to lenders – who could see you as a risk to lend money to, Sarah said.
“Anything that is reported to the agencies will stay on your file for up to six years.
"So when you apply for any other kind of borrowing – or even something as simple as a mobile phone contract – they’ll be able to see these missed payments and it could count against you,” she said.
If you have a mark on your credit file and you believe it is incorrect, you can contest it and get it removed though.
It could help you if used sensibly
You might not realise that using BNPL services could help to build your credit score – if used wisely.
Using credit responsibly – which means ideally paying off any debt in full each month – shows lenders you can be trusted with money.
If you make all your repayments on time and don’t max out your credit limit, lenders will be able to see you are borrowing responsibly.
“It may improve your credit score when the data is included on your credit file,” Sarah said. “However, that doesn’t mean you can go wild with BNPL.
“You still need to think very carefully whether you really need the item right now, and whether you can afford all your repayments.
“This is not the time to be borrowing any more than you need to.”
Three ways to improve your credit score
This big BNPL shake-up a good opportunity for you to check up on your credit report.
It’s important to do this occasionally to spot any inaccurate or out-of-date information that could be impact your score.
To do this, contact the three credit reference agencies to check your file.
You can get a free statutory credit report from each of the credit agencies, but you'll have to pay to view your whole file.
Get on the electoral roll
Proving where you live can boost your credit score.
That means you’ll want to get yourself on the electoral roll – you can do this online, and it should only take five minutes.
“Make sure your credit reports show that you’re on the electoral roll where you live, which proves your address,” Sarah said.
It can help lenders confirm your identity – and shows you have a stable home address.
Cut ties
See whether your credit file is linked to anyone you have lived with or shared a financial product with.
For example, if you held a joint bank account with a former partner or housemate, make sure you “un-link” yourself from this by contacting the bank.
“If you’re no longer linked to them financially, make sure the agencies know about it, or their bad habits could damage your ability to borrow,” Sarah said.
Build up your history
It’s not just a poor credit history that could damage your score.
Not having ANY credit history at all means you’ll likely have a low score too.
That’s because lenders won’t be able to tell if you've handled credit well – because you haven’t taken any out.
So while it might sound counter-intuitive, it's actually sensible to have a credit card and use it from time to time – just be sure to use it wisely, clearing the balance in full each month.
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“You’ll need to build up a record of repayments – which is harder if you can’t get anyone to lend to you,” Sarah said.
“You can use a credit card designed for people with a poor credit score, but you need to be absolutely certain you’ll pay it in full and on time every month, or you’ll do more harm than good.”
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