Does Clearpay affect your credit score?

With the cost of living crisis "buy now, pay later" is more tempting than ever as a way of spreading costs. But before you opt to pay later at the checkout, it's worth understanding how Clearpay and others can affect your credit score - and getting a mortgage. Plus we explain how the schemes differ and how to use them safely.

Angela Kerr Director, Editor

Buy now, pay later lets you spread the cost of buying goods which is great in theory – but how does Clearpay affect your credit score? And how do others like Klarna and Laybuy compare? It’s vital you know before you’re tempted to use them at the checkout because if you do it wrong, Buy now, pay later credit can affect your credit score – and your chances of getting a mortgage. Here’s how.

Buy now, pay later explained

With Buy now, pay later, instead of paying a retailer for goods in full at the till or online checkout, the Buy now, pay later credit provider pays the retailer for you. And then you’ll pay the Buy now, pay later, provider – interest free – over a number of regular instalments. Or pay it off as a lump sum at a later date.

It’s also known as “point of sale credit”. Each scheme is different; some give you 30 days to pay while others allow you up to 12 months.

There are potential benefits; it could mean you can avoid going into your overdraft. And unlike most credit cards or store cards, Buy now, pay later schemes don’t charge interest. Plus, the approval process is almost instant when you get to checkout.

What are the main Buy now, pay later credit providers?

The main providers of Buy now, pay later credit are: 

• Clearpay – is available at retailers including M&S, Monsoon and Boohoo.
• Klarna – it works with thousands of retailers including ASOS, Peloton, Superdry and Samsung
• Laybuy – is available at retailers including JD Sports, Lululemon and Reiss.

However, there are factors to watch out for including the impact Buy now, pay later can have on your credit score.

How does Clearpay affect credit scores?

Clearpay does not affect credit scores as it does not share your data with credit reference agencies.

Does Clearpay affect your mortgage? And Klarna and Laybuy?

When you apply for a mortgage, the lender will ask one or more of the credit reference agencies to look into your financial history to help them make a decision. Having a good credit score increases your chances of a successful mortgage application – but a bad credit score can mean a rejected application, or more expensive mortgage rates.

There are three main credit reference agencies in the UK: Experian, Equifax and TransUnion. And they each compile a report that paints a picture of how well you manage credit. This is summarised by a single number, which is your credit score. Your credit score is very important: it decides whether you can take out a mobile phone contract, it shapes the amount of interest you pay on your credit card, and it can make or break your property purchase.

What do mortgage lenders look for?

If you miss Buy now, pay later payments and this is flagged on your credit report this will be a red flag to lenders. However, if you use a Buy now, pay later scheme that doesn’t report to credit reference agencies or perform a hard credit check when you apply, it doesn’t mean a mortgage lender considering your application won’t know you have been using the schemes.

Lenders may look for Buy now, pay later commitments when analysing the bank statements you have to submit when applying for a mortgage. So, your borrowing will be picked up eventually even if it isn’t on your credit report.

Lenders are typically less concerned if you use Buy now, pay later for smaller items. However, if the borrowing falls into the category of an ongoing financial commitment it is likely to be taken more seriously. So those new trainers you defer payment on for 30 days, interest-free is unlikely to be of much concern if you make your payments on time. However, a larger purchase spread between six payments would be seen as a financial commitment that would impact your disposable income each month assuming you are still repaying it when you apply for a mortgage.

Read our guide How to make a successful mortgage application

Does Buy now, pay later affect my credit score?

In part, this depends on if your Buy now, pay later credit provider shares your spending data with credit reference agencies. So what’s going on with the main Buy now, pay later credit providers in the UK?

Klarna

In June 2022, Klarna started sharing Buy now, pay later purchases made in the UK with the credit reference agencies Experian and TransUnion. Klarna says “this will give the UK financial industry greater visibility on the use of Klarna’s BNPL products, help to improve affordability assessments, and means Klarna consumers who make payments on time will see long-term benefits, showing lenders they use credit responsibly.”

Klarna have said that the information they share won’t affect your credit score straight away, but that it is something that Experian and TransUnion are working on. But as lenders will be able to see this information, even if it doesn’t affect your credit score, it may influence your eligibility with them, for good or for bad.

Clearpay

So how does Clearpay affect your credit score? Clearpay doesn’t currently share information about your payments with UK credit reference agencies. So, this information won’t appear in your credit report. However if you’re asking how does Clearpay affect your credit score, bear in mind the company said recently “appropriate and proportionate credit reporting can add value for customers” so this may change in the future.

Laybuy

Since 1 September 2022, Laybuy has been sharing customers’ repayment data with the UK’s biggest credit reference agency, Experian. This is a positive move for those who use Laybuy’s payment plans responsibly because payments made on time will help build a positive credit history. But on the flip side it also means that if you miss a payment, or pay late, you may be less likely to be accepted for credit in future.

Buy now, pay later: Beware hard credit checks

Klarna and Clearpay will only run a ‘soft’ credit check on you if you want to use them. Other lenders can’t see soft searches and they have no impact on your credit score or future credit applications you make.

But Laybuy will carry out a hard credit check when you open an account with them. This will show on your credit report. Lots of hard searches worry lenders when they check your credit report as it looks like you are desperate for credit.

Beware of missed payments

If your Buy now, pay later credit provider reports your repayment data to a credit reference agency and you miss a payment then it will show on your credit report. But even if your provider doesn’t report your details to credit reference agencies there can also be consequences for your credit score. If you don’t pay back money you owe to a Buy now, pay later credit provider, it may pass your account to a debt collection agency to try to get the money back.

Credit checks undertaken by debt collection agencies have a particularly negative impact on your credit score. And debt collection agencies can also mark defaults on your credit file. These can have a major impact on your credit score and your chances of being approved for credit for up to six years.

This is not a small-scale problem. In 2021 Citizens Advice warned one in 10 shoppers who use Buy now, pay later services have been chased by debt collectors.

Additionally, if you don’t pay on time you may be charged fees too.

If you’re looking for a mortgage with bad credit it’s a good idea to get expert advice. Our mortgage broker partners are fee free and will run through the options for you and talk through the costs involved:

Does Clearpay build your credit score?

No, Clearpay does not build your credit score. It’s a Buy now, pay later service that doesn’t report to credit reference agencies, so it doesn’t affect your credit score.

Debt dangers of Buy now, pay later schemes

Don’t allow the attractions of Buy now, pay later schemes persuade you to spend more than you would have otherwise. Doing so is common – research has shown that two fifths of shoppers admitted they spend more when using Buy now, pay later schemes than they usually would. While over half felt using the schemes had contributed to increased levels of personal debt.

How to use Clearpay, Klarna and Laybuy safely

If you do want to take advantage of Buy now, pay later schemes, make sure you do it safely. It’s a good idea to:

• Set your spending limit: It can be easy to lose track of what you spend, especially if you use multiple providers. Ensure you set a spending limit so you stay in control.
• Use payment reminders: Set reminders to inform you when you need to make your repayments.
• Ask for help: if you’re having difficulties making repayments, contact the company. They may be able to offer you an alternative arrangement.

Ways to protect your credit score

Here are some ways to protect your credit score, from using Buy now, pay later schemes carefully to cutting financial ties with previous partners….

• Make your Buy now, pay later repayments on time. If you use Buy now, pay later sensibly it could improve your credit score, assuming you use a Buy now, pay later scheme that reports to credit reference agencies – and crucially by repaying on time. It means that you are demonstrating that you are a reliable borrower.

• Check your credit reports. The best way to understand your credit report is to see it for yourself. You can request your report from the three credit referencing agencies (Experian, Equifax and TransUnion). You can do this online for free. Check your reports regularly and especially before you make any significant applications for credit. Knowing what your rating is with each agency will give you a great benchmark for improvement.
• Only apply for a credit card if you know you’ll be accepted. If a lender sees you’ve applied for multiple cards over a short period of time (i.e. if you’re trying to get a credit card to spread the cost of Christmas) you’re going to look a little bit irresponsible and, perhaps even, desperate. Check you’re eligible for the card before applying
• Don’t apply for too many store cards. Let’s be honest, it’s certainly tempting. But too many credit searches will not go down favourably with lenders.
• Watch out for scams. If a scammer gets your financial details, not only can they take your money they can also make applications for credit in your name and damage your credit score in the process. Be careful when shopping online. ClearScore advises sticking to websites you trust, watching out for emails from big brands that have grammar or spelling mistakes and strange website addresses.
• Stay on top of bills. Make sure you don’t miss any bills or payments by setting up direct debits wherever possible.
• Cut all ties. If you’ve had any finance agreements with an ex-partner, whether a mortgage, a loan or even just shared bills, their credit history can be considered when determining your score. Make sure you inform the credit reference agencies that you’re no longer together by asking for a ‘notice of disassociation’.

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