New BNPL rules: Will a credit check stop you from using Afterpay or Zip?
Using buy now pay later now shows up on your credit report. Which is a good thing!
New regulations in effect today bring buy now pay later services under the same regulations that govern credit cards and loans.
Buy now pay later (BNPL) services like Afterpay and Zip have long operated with looser guidelines than the ones banks and credit card companies operate under.
Changes to the National Consumer Credit Protection Act 2009 now define BNPL services as "low cost credit contracts."
The changes mean that BNPL services:
- Need a credit license to operate.
- Need to be a member of the Australian Financial Complaints Authority (AFCA).
- Need to follow responsible lending obligations and assess whether their product is suitable for the customer.
- Review the customer's credit history via a credit reporting agency
These changes give customers more protections and require BNPL companies to make sure they aren't letting customers buy more than they can afford to repay later.
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What do these changes mean for you?
While many BNPL companies already record late payments on customer's credit reports, it varied by company.
Now it's mandatory.
- If you sign up for a BNPL company it will check your credit score. If your credit score is too low you might not be able to use the service.
- Using BNPL can impact your credit score. If you regularly use a BNPL service it may show up on your credit report. If you use BNPL often or get charged late fees this could lower your credit score.
- Using BNPL shows up on your credit report and can affect your eligibility for loans or credit cards. If you're applying for a loan or trying to get a credit card, use of BNPL can limit how much you can borrow or decrease your chances of getting a loan approved.
The bottom line is that these changes benefit Australians. BNPL providers have to check that you won't get into financial trouble by using their service.
But it also means consumers need to be aware of what they're signing up for and how it can affect their finances.
Tips to keep your BNPL use under control
- Treat buy now pay later like any other debt or credit card spending. This means paying it off on time. Don't let late payment fees build up week after week. Set up auto repayments and keep on top of your spending.
- Review your use of BNPL (and all your spending). People are often shocked when they sit down and look at their entire spending history over a month. We all spend more than we intend to on different things. Review your BNPL spending. If you don't like how much you're spending, make a plan to reduce your use of it.
- Check your credit score. Regularly checking your credit score is an easy way to see if BNPL use is affecting your score. You can check your credit score for free through Finder or other services.
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