4 Ways To Protect Your Credit If You Use BNPL Apps
Written by
John Schmoll
Edited by
Jenna Klaverweiden
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Buy now, pay later (BNPL) usage has exploded in recent years. The ease of use and economic headwinds are likely contributors to the growth. Since the introduction of BNPL services, there has been relatively minimal impact on credit scores. However, that’s changing, as FICO will begin to factor in BNPL usage, according to The Wall Street Journal.
Reports indicate this may cause problems for many Americans using BNPL apps. A recent study by LegalShield revealed that 38% of users are unaware of the FICO changes. For those actively using BNPL loans, this may pose significant long-term problems. Here are four effective ways to protect your credit if you use BNPL services.Â
Always Pay on Time
It’s easy to think of using BNPL as free money. BNPL apps don’t offer free cash; rather, they’re short-term loans that are often interest-free. Missing payments can incur fees, however.
Unfortunately, 49% of users have missed payments, according to LegalShield. Missing payments could now have ramifications that could negatively impact your creditworthiness.
Consider automating payments or setting calendar reminders to help avoid missing payments. Paired with reduced spending, this could help prevent damage to your credit score.
Keep Your Spending in Check
Many users of BNPL apps report using the payment option for necessities, but that’s not always the case. A reported 54% of Americans used BNPL apps to purchase luxury items, according to LegalShield. Worse yet, over 60% of users have multiple BNPL loans.
BNPL apps can make it easy to overspend. Don’t fall prey to the idea that the services offer free money. It’s prudent to track your spending so you know exactly what you owe.
Regularly Review Your Credit Report
It’s always a wise practice to regularly monitor your credit report for errors. Some banks and credit card issuers also provide access to credit reports. Review your report to identify any possible errors. This is increasingly important given the changes.
A reported 45% of BNPL users have faced legal disputes, with over 60% of those reporting billing errors, according to LegalShield. If you identify something incorrect, dispute it so it doesn’t needlessly hurt your credit.
Use Only Reputable Providers
If you must use a BNPL service, use a reputable service.
A reputable service will typically make it easy to dispute a transaction or clearly communicate your rights. LegalShield revealed that 28% of BNPL users don’t even realize they have the legal right to file a dispute. Reputable lenders are more likely to report data accurately and offer customer service when you need help to solve issues, making it simpler to protect your credit.
BNPL loans can make managing your needs simpler. Used wisely, the apps can be a helpful tool. Careless use of the apps, however, could have the potential to create more challenging financial hurdles.
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