If you were doing some last-minute holiday shopping online, you might have seen a new option as you chose to purchase your item: Instead of paying the full amount, you could pay a portion at the time of purchase and space the rest over time (often, four payments made every two weeks). But what that quick offer at check-out probably did not explain is that these “easy payment” programs can wreak havoc on your credit score.
Traditional layaway programs didn’t impact someone’s credit score—it was a way of getting credit without a credit check and didn’t impact credit if payments weren’t made. However, Experian does include some “buy now, pay later” purchases in credit reports, while the other two major credit reporting bureaus, Equifax and TransUnion, are taking steps to do so in the coming year.
The real concern here is that these payments could easily distort (and damage) someone’s credit score.
A few small “buy now” purchases could make it appear to credit bureau algorithms as if you have substantially increased the number of vendors you’re indebted to. And credit reporting companies traditionally update their data on a 30-day or longer basis. Thus they don’t update as frequently as these plans require payment.
Therefore, if you opted for a few of these spread-out payments, your credit report could be showing a rapid increase in the number of your debtholders—a red flag for credit scores.
And the bureaus’ delayed updates could make it appear that you owe more money than you actually do since some accounts may not even appear until after you’d already paid them in full.
Either one of these factors is enough to affect a credit score. Combined, they could significantly distort the overall picture of your financial position and result in an inaccurate credit score.
And the more frequently updates need to be made, the greater the likelihood of errors in the credit reports.
In other words, these small, seemingly inconsequential payment plans could have downstream impacts when you’re trying to make a major purchase such as a home or car.