Buy Now, Pay Later: The Ultimate Credit Score Conundrum

Let's face it - shopping just got a whole lot more exciting with the introduction of the Buy Now, Pay Later (BNPL) scheme. Who wouldn't want to splurge guilt-free and pay later? But hold up, before you go swiping your credit card left and right, have you considered how BNPL might affect your credit score?

In this article, we're diving into the world of BNPL and exploring how it could impact your credit in the UAE. So, buckle up and get ready to discover the real deal behind this shopping sensation!

Breaking Down the Benefits of BNPL 

Before diving into the big question, it is important to understand what made the BNPL program such a big hit. The scheme has become popular due to various convenience features like 0% interest and nominal fee. With this scheme, you also get the advantage of breaking up your total purchase into a series of easily payable instalments. 

With many advantages to offer, this payment scheme, however, has shown several drawbacks, including its effect on your credit Score

The Big Question - Does BNPL Affect the Credit Score? 

This credit scheme does not charge any interest, only late fee is charged for missed payments and this is logged in your credit record. Also, if most BNPL providers do not report timely payment to al etihad credit bureau (the credit authority), meaning that you cannot use a good payment history to build your credit score with this financial facility. 

Contrary to this, missed payments are logged and reported to AECB resulting in attracting penalty in form of bad credit score. As per Bruce McClary, Senior Vice President at the National Foundation for Credit Counselling, missed payments, once showing up in the credit report, can create a hurdle that could be difficult to overcome.   

Another drawback of BNPL is that you can experience the problem of overdrawing from your accounts since the instalments are automatically billed to your debit card.  So while an advantage of such a facility is its easy approval, BNPL providers cannot demonstrate responsible use credit to the bureau. In fact, most of the BNPL providers do not interact with AECB. Instead of conducting hard or soft credit pulls, they simply pause the buyer’s account after one missed payment. 

This practice can harm young buyers who might need to access their credit score to apply for and get loans sanctioned in future. . 

So, What to do?

Most financial experts suggest opting for secured personal loans or other financing options that also help you in building credit by making timely payments. 

If you plan to explore BNPL, it is advised to use this credit option cautiously to avoid a dent in your credit score. For this -

  • Use only one debit account - Tracking multiple purchases from different accounts can be chaotic and can lead to omission of some repayments.
  • Note down the payment dates on an e-calendar or diary and ensure that there are sufficient funds in the account at the time of payment.
  • Create limits for expenses and draft a budget that includes all the utility bills and essential expenses. 
  • Read the Terms and Conditions carefully to know more about additional fee and charges.