How Buy Now, Pay Later Services Can Affect Gen Z's Credit Score

This. Isn’t. Free. Money ⚠️

Illustration of piggy bank with calendar

Buy Now, Pay Later (BNPL) services such as Klarna, Afterpay, and Affirm have become increasingly popular over the last several years, especially with Gen Z.

Last June, Insider Intelligence said 55.1% of Gen Z digital buyers will use a BNPL service at least once this year.

Since then, an article in The Atlanic announced that ‘the BNPL bubble is about to burst.' Immediately, doesn’t sound great.

The article shared some pretty alarming facts, which give you an idea of what this headline means:

- BNPL use causes a permanent increase in total spending of about $60 a week, stretching the average household retail budget 30 percent.

- BNPL users under 25 have the highest default and delinquency rates. If credit dries up in a broader downturn, they are at risk of losing access even to those programs.

- BNPL delinquency rates are outpacing those of credit cards, and the BNPL companies have seen their valuations slashed in the face of waning interest from investors.

So, in general, relying heavily on BNPL services is risky biz. Today we're gonna look at the risks surrounding your credit score.

BNPL makes shopping easier than ever before, because you literally just need to make a small down payment which is usually 25% of the total amount.

But the fact you only need to make a small down payment is exactly what’s causing Gen Z to overspend.

And it can negatively impact their scores as a result.

Many people aren’t aware that if you don’t make the payments back on time, you can face late fees which could leave a mark on your credit file ⚠️

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Via Giphy

So, what is BNPL?

It’s a short-term financing method that lets people make purchases and pay for them in a number of installments which are usually interest-free.

It kinda functions like an unsecured loan and you usually pay a down payment which is around 25% of the total amount.

So instead of paying full price at the checkout, the BNPL service will pay the retailer on your behalf. You’ll then repay it over a certain amount of time (usually spread out over a few weeks to months).

When used correctly, it shouldn’t cost you or your credit score a dime.

However, there are a few things your money needs to know before diving into the BNPL world headfirst 💸

The most important question – does Buy Now, Pay Later affect your credit score?

Unfortunately, yes. It can.

If you miss a payment or if it’s late, you could face fees which if reported to a credit bureau, could negatively impact your credit score.

21 year old Sarah Pfefferle, who managed to save $16,000 for a house deposit by the time she was 18 but then started using BNPL services which she said “ruined everything.”

In just two months Sarah racked up $5,000 in debt which was spread across three different installment-loan firms. Her credit score dropped from 720 to 580 🤯

Sarah’s not alone though. Current trends, influencer posts, social media, and easily accessible BNPL services can cause people to overspend and rack up debt.

Interesting stats you should know…

⚠️ 70% of women and 66% of men said they overspent using Buy Now, Pay Later

⚠️ In a survey of 2,000 people conducted by C+R research, 59% said they purchased an unnecessary item they couldn’t afford

🤝 BNPL – impulsive spending 🤝 Impulsive spending – BNPL🤝

Example time: Does Affirm report to credit bureaus?

Affirm, one of the largest Buy Now, Pay Later services currently reports some loans to Experian.

CNBC says they don’t report on loans with a 0% APR and four biweekly payments, or loans with a three-month payment term. But for other Affirm loans, the entire loan history is reported.

Affirm says the below could negatively affect your credit score:

  • Your payment history
  • How much credit you’ve used
  • How long you’ve had credit
  • Making late payments

Want an alternative to BNPL?

There’s always an alternative 💅

The Cleo Plus feature can spot you up to $250* but obviously we’d much rather you use this in an emergency.

Why Cleo?

Because Cleo is kind and she won’t have a negative impact on your credit score.

Also, there isn’t a specific income requirement for the Cleo Plus cash advance, meaning she doesn’t have to verify your employment status.

She’s the ultimate gig worker cash advance app 🥳

And if you want something that could help you work on your credit score and build your credit history, check out Cleo Builder**.

Everyone deserves a chance at working on their credit, and that’s why Cleo Builder was created. It’s completely focused on helping you build your credit history and improving your score.


*Nagging mode on*

If you are going to use a BNPL service, especially around this time of year, pls pls pls make sure you read the small print and pay the loan back on time.

Only order stuff you know you can pay back and use BNPL services like you would use a credit card.

Sensibly and with caution.

I’ve said it before and I’ll say it again…

This. Is. Not. Free. Money. 🙃

Look after your financial health. It doesn’t take long to get yourself into debt but it can take years to dig your way out. Be kinder to yourself and your money 💙

Enjoy this post? Give it a share or send it along to a friend. You never know, it could make a big difference. And of course, if you want to try the best money app in the world for free, just hit this link right here.‍

Big love. Cleo 💙

*Cleo Plus is our subscription service, which offers eligible users cashback on your money, information on your credit score, and access to cash advances (“Cash Advance”). Advance amounts will vary based on eligibility. If you don’t want to subscribe, you can also apply for cash advance by contacting our customer service at team@meetcleo.com. To learn more about eligibility, repayment, and overall terms, please visit: meetcleo.com/terms

**The Credit Builder Card is issued by WebBank, Member FDIC pursuant to a license from Visa USA Inc. Access to the Card is subject to approval.

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