Do Buy Now Pay Later companies perform a credit check?

Not all Buy Now Pay Later (BNPL) companies perform credit checks when you register to become a member, and such checks do not always affect your credit score. However, your BNPL activity could still impact your credit history, which could affect your chances of having future credit applications approved.

How do credit scores and credit checks work?

Every time you borrow or repay money in Australia, your information is sent to the credit bureaus and recorded in your credit report. This credit history is used to generate your credit score. Borrowers who repay their loans on time are more likely to have good credit scores, while those who have defaults or bankruptcies in their credit history are more likely to have bad credit.

Banks, lenders, and other credit providers use credit scores to quickly assess a borrower when applying for a loan, credit card, or similar financial product. Borrowers with good credit are more likely to be approved and may be offered lower interest rates or additional features and benefits. Borrowers with poor credit scores may have to pay higher rates and fees, or have their applications denied.

Applying for credit too often in a short period of time can risk hurting your credit score. Having too many credit checks on your credit history can cause some lenders to think that you desperately need credit because you’re having trouble managing your finances, and so they may deny your application.

How does BNPL affect credit ratings?

There is some debate as to whether BNPL services should be considered credit providers. As of this writing, most BNPL services do not require a formal credit check as part of their application process, although this may change in the future. This means that applying for BNPL is unlikely to directly affect your credit score.

A BNPL provider can still perform a credit inquiry (sometimes called a “soft” credit check), which is similar to checking your own credit, but it will not affect your credit score.

A few BNPL providers may still perform a ‘hard’ credit check when you apply, particularly if you are requesting a higher account limit, as this can help them assess your risk as a customer.

Your BNPL accounts can also affect your credit score in other ways:

  • If you are unable to make your BNPL refunds on time, once they have been overdue for some time, your provider will be obligated to report your late refunds to the credit bureaus. This will show up in your credit history and could hurt your credit score.
  • If you have multiple BNPL accounts opened in your name, a lender may choose to deny your credit application, as the lender may feel that you may not be able to pay your loan repayments alongside your BNPL commitments.
  • Linking a credit card to your BNPL account could affect your credit score. If you miss BNPL repayments and end up with credit card debt, this could turn into overdue credit card debt, which will need to show up on your credit report.

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