Buy now and really pay later….. Managing your credit score

Managing your credit score needs to be something you do on a day to day basis. And it is about performing lots of little things right. Doing those little things will help make sure your score is maintained.

There are many ways to improve your credit score – but the best thing to do is to sign up to the many credit score companies that will look at what you are doing well and what you are not doing well and how to improve them.

This blog is about a particular trap that can occur when shopping for your most needed goods. Well maybe not your most needed goods but possibly something you fancy. But there are schemes that a lot of online retailers offer and it may not necessarily be clear what effect it will have on your credit score.

One of these schemes is a buy now, pay later offer. Bear in mind in financial terms, this offer is a loan. You are effectively taking an item for free and the retailer is loaning you the money for the item. And you pay for the item later, effectively paying off the loan. Now please bear in mind this may not be the case for every pay now, buy later scheme.

So how does this effect your credit score. Well in multiple ways.

Credit Checks
Every time you take out a credit agreement, or a loan you will most likely have a credit check. This is where the company looks at your credit report and makes a decision on whether they feel you can take out the loan. Now a credit check on its own is not necessarily a disastrous thing. But if you have a lot of checks over a short period of time, even if they are successful, it doesn’t look good to other potential lenders who may look closer at your report. When looking at serious borrowing, like a mortgage, the lender will really scrutinise your report and if they see a lot of credit checks, they will see this as irresponsible lending or applications to lend and deny you that mortgage you truly need.

Missed Payments
Your credit report stores all sorts of information, one of those is every time you miss a payment, that could be for your mobile phone, loans, mortgages, rentals etc. So if you get a buy now and pay later and miss payments this could be something that damages your credit score. Buy now and Pay later schemes, are just that, they are schemes to make you buy. You still need to consider, whether you can afford it.

So our advice, is not to necessarily not go for these, but truly look into the affordability of it for your self. Get an understanding of how the scheme works, are they doing a credit check. How do the payments work, is it something you pay over time? If unsure, speak to their customer service, or ring an independent body.