What you should know about buy now, pay later services & your credit score
Interest-free, buy now-pay later payment providers are the current craze for Australian shoppers. Providers such as Afterpay, Zip Pay, Certegy Ezi-Pay, Oxipay, BrightePay and Openpay have taken Australian retail by storm.
A recent ASIC review found that there was a 400 per cent growth in customers who had used this type of payment service — from 400,000 to 2 million (between FY16 and FY17), with the number of transactions per month growing from 50,000 (in April 2016) to 1.9 million (in June 2018).
At 30 June 2018, Australians collectively owe a shocking $903 million in buy now, pay later debts.
If you are an existing buy now, pay later customer or are planning on being one, we answer some of the common questions you might have surrounding this topic and how being a customer of these payment services could affect your credit health.
What is buy now, pay later?
A buy now, pay later arrangement allows you to order or purchase a product immediately and delay payment. Payment instalment options can range over several weeks or, with some service providers, over a longer period of time.
Could buy now, pay later affect my credit score?
Yes, it could. As not all buy now, pay later providers check your ability to make repayments, this means you could end up taking on more credit than you can afford and could have trouble making your repayments on time. If you are already in debt, further debt could have an impact on your credit score which could make borrowing credit more difficult in the future.
What information is added to my credit file if I’m using a buy now, pay later service?
Unlike the traditional forms of credit, not all of these services conduct a credit check when you apply to become a customer. And because these aren’t currently considered as credit products, open accounts and your repayment history won’t go towards helping you build up a good credit history either.
However, in the event where you miss a payment, most of these providers can report any negative activity recorded on your buy now, pay later account (including late payments, missed payments, defaults or serious credit infringements, etc.) to credit reporting bodies and of course they’ll charge late fees too.
How long the black mark will stay on your credit report depends on the type of negative event – you can find out the duration here.
How could I use buy now, pay later services responsibly?
- Don’t have multiple buy now, pay later accounts
Committing to different buy now, pay later providers could result in you not keeping track on how much you have spent and if you have other finances due at the same time as buy now, pay later, you could have trouble making all the repayments.
- Don’t bite off more than you can chew
It’s always a good idea to set a budget and stick to it. Before you make any purchases through these types of services, sit down and crunch the numbers against your budget to know how much you can spend, after you have set aside the money for bills, expenses and some for savings.
- Link to a debit card, not a credit card
If you are planning to sign up to a buy now, pay later service, make sure you link your account to your debit card instead of your credit card to make your repayments, as putting your transactions on a credit card could easily build up on your monthly credit card balance and mount into further debt from the interest.
- Check your funds regularly & set up payment reminders
Buy now, pay later services automatically deduct the balance from your preferred debit card or credit card, so make sure you have sufficient funds in there before the due date to avoid late fees. Use notifications to track the number of purchases you’ve made and enter the due dates in your calendar so that you can work these payments into your budget.
- Read the T&Cs before you apply
While some of these buy now, pay later services are an alternative to paying upfront, layby or using a credit card, you should always read the fine print to be aware of the potential risks associated and how your personal information is being handled by these platforms.
If you still haven’t checked your credit score, don’t worry, you can sign up for free at Credit Savvy and visit our Learning Hub for the latest news and tips on how you can improve credit score over time.