“Buy now, pay later” debts will now hurt your credit score

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Buyers who fail to meet ‘buy now, pay later’ refunds could hurt their credit ratings, after the top ratings agency announced it would incorporate controversial debts into credit checks.

TransUnion, one of the largest credit rating agencies, will begin including buy now, pay later data in its credit checks starting this summer. This could limit access to financing, such as mortgages, for people who have shopped beyond their means during the pandemic.

Buy Now, Pay Later services allow customers to purchase items and pay the cost in installments without interest, as long as they meet the payments. The biggest companies are Klarna and Clearpay.

Mark Dyason, of Edinburgh Mortgage Advice, a mortgage broker, said formalizing the immediate purchase and subsequent payment of debt in affordability checks would have a disproportionate impact on the cost of borrowing for people low-income, as they were more likely to pay for bulky goods, such as computers. or canapes, by monthly installments.

“Any debt is going to affect what you can borrow. Simply because it’s different from traditional debt, it’s still a commitment to pay each month and affects what a person can afford to pay for. a mortgage loan.

“Buy now, pay later is more tempting for low-income people, but is more damaging, as the costs will represent a greater proportion of their disposable income,” he said.

These services have exploded in popularity during the pandemic. TransUnion research showed that more than a third of consumers used this type of payment in 2021, with several of the country’s largest retailers offering it during their online checkout process, including Marks and Spencer, H&M and Asos.

However, buy now, pay later, buyers racked up an average debt of £538 each and total debt and buyers owed more than £4billion, according to ratings firm Credit Karma.

Citizens Advice said it was concerned the service was encouraging people to take on unmanageable debt. An Opinium poll of 2,000 buy now, pay later customers found that 10% had been sued by a collection agency after using the service, with the proportion rising to one in eight for people under 34.

TransUnion said the changes would benefit people with thin credit records and promote financial inclusion.

The firm’s Satrajit Saha said: “These changes will be truly beneficial for those with thin credit records, supporting financial inclusion and wider access to credit, while helping to ensure that finance providers have a holistic view of an individual’s borrowing, so they can use this information to help ensure the right results for consumers. »

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