Buy-now pay later schemes have become increasingly popular with shoppers in the UK, however payment plans can be damaging to credit scores if they are not used correctly.
Payment schemes have had a huge impact on the fashion industry, making it more accessible between paychecks.
However, experts at Norton Finance have warned that some missed repayments can stay on a credit record for six years and the overuse of credit schemes can be seen as problematic to lenders.
Having a good credit score is really important for making big financial decisions like applying for loans so they have come up with some advice for using buy now pay later plans.
Credit scores are used to determine eligibility for lenders and many factors can damage them, including using buy now pay later schemes.
The plans are easy to use and hugely beneficial when cash flow is an issue or you want to try something before you commit to the cost.
Used poorly and consumers can find themselves in a circle of repayments that are equivalent to debt and hard to get out of.
Norton Finance has come up with their top three tips for maintaining a good credit score whilst using buy now pay later schemes:
- Always make re-payments on time – late payments are damaging to credit scores.
- Avoid opening too many credit accounts at one time – too many active credit accounts are a red flag for lenders.
- Only borrow what you can afford to pay back and borrow infrequently - this helps show lenders that you are a responsible borrower.
The UK spent fifty-three billion thirteen million pounds on clothes in 2020 and with the option to buy now and pay later, it is not surprising that 22% of buy now pay later users have had their credit scores negatively affected by their online shopping habits.
Get the latest money-saving and benefits news sent straight to your inbox. Sign up to our weekly Money newsletter here.
