The catch with buy now, pay later could be your credit

Buy now, pay later, or BNPL, is a payment plan that lets you break up your total purchase at checkout into a series of smaller installments.

Though these plans aren’t new, they’ve recently catapulted into the mainstream, with major U.S. retailers like Amazon, Walmart and Target now offering them. But with promises of convenience, zero interest and minimal fees, many shoppers are wondering, “What’s the catch?”

It could be your credit.

BNPL providers don’t typically report on-time payments to the major credit bureaus, so unlike with credit cards or loans, you can’t build credit with this type of financing. Some providers will report missed payments, though, which could end up hurting your score.

BNPL AND THE CREDIT BUREAUS

Afterpay, an Australian company that provides BNPL payment plans to over 16 million shoppers in the United States alone, doesn’t interact with the credit bureaus at all, including when shoppers first apply for approval.

According to Nick Molnar, co-founder and co-CEO of Afterpay, checking a shopper’s credit file has “no positive correlation” to the company’s ability to reduce losses. Instead of conducting a soft or hard credit pull, the company applies safeguards like pausing a shopper’s account after one missed payment, which Molnar says customers appreciate.

“I think this next generation is looking for these products that have their best interest at heart,” he says. “At its core, that’s why we’ve been able to grow as fast as we have.”

Though this approach means easier approval for those with no credit or bad credit, shoppers can’t use Afterpay payments to demonstrate responsible use of credit to the bureaus. On-time payments are the largest contributor in determining FICO credit scores.

Afterpay...