Does Buy Now Pay Later impact your credit score?

From Afterpay to Zip and every Buy Now Pay Later (BNPL) company in between, it seems Aussie shoppers can't get enough of splitting up purchases. In fact, research from RFIGlobal has found that some 40% of Australians are regular BNPL users.

Ever since BNPL hit Aussie shores, there's one question that still remains for almost all BNPL users: will BNPL affect my credit score?

Initially, with the lack of regulation around BNPL services, this was easy to get confused around. As regulation on the BNPL sector has grown, things have changed.

To give you the inside scoop as to whether signing up to a Buy Now Pay Later platform could impact your credit health, we've compiled this handy guide.

Is Buy Now Pay Later a type of credit?

While Buy Now Pay Later operates slightly differently to other forms of credit, it is now to be regulated under the National Credit Act.

So how can Buy Now Pay Later impact my credit score?

If you begin to accrue negative actions on your BNPL account, like defaulting on payments, many BNPL companies reserve the right to report these actions to credit reporting bureaus.

Another common way your BNPL spending could hurt your credit score is if you choose to link your credit card to your account and miss monthly repayments. Doing this often enough could lead to a negative mark on your credit report. 

Since the addition of regulation to the BNPL sphere, positive actions - like regularly making repayments - may work positively for your credit score.

Is there a credit check when I apply for a Buy Now Pay Later account?

This will depend on the BNPL company you sign up for. Generally speaking, BNPL companies provide customers with a larger account limit to ensure customer credibility. 

Other companies may perform an internal credit checks, like PayPal, whose BNPL offering will check your existing PayPal payment history.

How is Buy Now Pay Later being regulated?

On 1 March 2021, BNPL companies, like Afterpay, Klarna and Zip signed a Code of Conduct. This Code was a world-first for this type of regulation, as it set out the best practice for BNPL's to ensure customers were protected. 

Other sections of the law BNPL companies are subject to are the Privacy Act 1988, the Australian Privacy Principles (APP) and the Privacy (Credit Reporting) Code 2014 wherever necessary.

As of May 2023, BNPL is to be regulated under the National Credit Act. As it stands, it is required that lenders consider any debt from BNPL in your debt-to-income ratio.

What kind of credit score do I need to apply for a Buy Now Pay Later account?

There is no definitive number or score you need in order to be approved for a Buy Now Pay Later account. Generally speaking, BNPL services will start you with a smaller amount of available money to spend (similar to credit), and this will increase as you demonstrate your trustworthiness.

If you come to find that your credit health could do with some improvement, it could be worth improving your credit score first to avoid being rejected. 

Ready to find the Buy Now Pay Later company that's right for your spending needs? Then head on over to our Buy Now Pay Later feature guide. If you're more interesting in crunching some numbers, check out our Buy Now Pay Later statistics.

Alternatively, if you are looking to improve your credit score, you may want to consider other options. A low-rate credit card may have an annual fee, but may be a better option to demonstrate your creditworthiness. Explore those options below.