With the festive season around the corner, consumers increasingly turn to modern borrowing tools to manage expenses, buy gifts, and cover celebrations. Among these options, Buy Now, Pay Later (BNPL) services are gaining popularity due to their flexibility and interest-free instalment plans. However, it’s important to understand how using BNPL can impact your credit score.
What Is Buy Now, Pay Later (BNPL)?
BNPL allows consumers to purchase products immediately and pay in scheduled instalments without incurring interest for a limited period. Essentially, the BNPL provider pays the merchant upfront, while the borrower repays the provider over the agreed tenure. Providers may be regulated by the Reserve Bank of India (RBI) or licensed international companies operating in India.
How BNPL Impacts Your Credit Score
1. Credit Checks:
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Some BNPL providers conduct soft credit checks, which do not affect your credit score.
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Others perform hard credit checks, which can temporarily lower your credit score. Multiple hard checks in a short period can significantly impact your creditworthiness.
2. Repayment Reporting:
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Timely repayments reported to credit bureaus like CIBIL, CRIF High Mark, Experian, and Equifax can boost your credit score and build a positive credit history.
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Missed payments, however, can severely damage your score, sometimes dropping it by 100 points or more depending on frequency and duration of defaults.
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Not all BNPL providers report repayment behaviour, so the effect on your credit profile may vary.
Tips for Responsible BNPL Usage
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Plan your expenses: Include BNPL repayments in your monthly budget to avoid debt accumulation.
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Limit accounts: Avoid using multiple BNPL accounts simultaneously, as excessive credit usage may negatively impact your profile.
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Monitor credit regularly: Check your credit report and review terms, fees, and repayment history for accuracy.
Key Takeaways
BNPL can positively or negatively affect your credit score based on your repayment behaviour and whether your activities are reported to credit bureaus. Timely repayments strengthen credit profiles, while defaults can lead to significant drops.
Using BNPL responsibly, like any borrowing tool, requires due diligence and financial planning. Consulting a certified financial advisor can help ensure your festive spending does not harm long-term credit health.