While BNPL providers may not report on-time payments, some still report missed payments.
For example, Zip, formerly Quadpay, doesn’t report payments to the agencies but sends delinquent bills to collections, which can affect your score.
Pamela Capalad, a certified financial planner based in Brooklyn, New York, says that missed payments are the biggest risk when using a BNPL service. Since the installments can be automatically billed to your debit card, you could be overdrawn on your account, resulting in penalties, before ultimately defaulting on the loan. This can hurt at a time when you are particularly vulnerable.
“Often the people who use these types of plans have to break up payments for one reason or another,” Capalad says. “I don’t think that’s a good thing for that to affect their credit at the same time.”
McClary notes that one missed payment in the future could also lead to expensive financing, as interest rates are likely to rise for borrowers with lower credit scores.
“Once the collections account shows up on the credit report, it creates a bigger barrier to overcome,” he says. “The cost of borrowing goes up as your credit score goes down.”
Alternative ways to build credit