If you’ve shopped online in the last few years, you’ve likely seen the option to pay with Klarna, Affirm, Afterpay or similar services. These “buy now, pay later” (BNPL) apps let you split your purchase into four equal and interest-free installments or spread the cost over longer periods with interest.

If you’ve ever used these services, you’ll want to know those payments are getting reported to FICO — meaning they can show up on your credit report.

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According to the Federal Reserve Economic Well-Being of U.S. Households in 2024 report, 15% of Americans have selected the BNPL option within the last year. The payments seem simple enough: An $80 item can cost you $20 every month for four months, and if you pay on time, you won’t get charged a penalty or interest. Plus, these types of payments are usually smaller, since they are used on routine online shopping.

But, nearly a quarter of shoppers using BNPL have reported a late payment, the Federal Reserve found. Now, the late charge can show up on a buyer’s credit score.

Why FICO is making the change

FICO, which did a yearlong study with BNPL provider Affirm, wants to see how American consumers spend their money and how often they need to take out these small “loans.”

The BNPL option "is becoming a really big part of how people are managing their finances, and so FICO wanted to be able to manage and reflect that shift," Julie May, vice president and general manager of business-to-business scores at FICO, told NPR.

The Federal Reserve says BNPL is used by many demographics but especially by younger low and middle-income Americans. And for those shoppers, using Klarna or Affirm may be the only way to afford even those smaller purchases. FICO says this data has been a “blind spot,” and now with BNPL data, they can see how many loans Americans can truly afford to take on.

"We want people to get the credit that they need — but we don’t want lenders to be flooding the market with credit beyond what’s safe and reasonable for consumers," Adam Rust, director of financial services at the Consumer Federation of America, told NPR.

Making BNPL purchases can be a way to start building credit if you have no loan history, but FICO says using BNPL won’t do much to increase your current score if you’re trying to bump it up. Plus, missing payments will still hurt your score.

The potential ding to your credit score isn’t the only risk with this payment option, either. Rust warns that they don’t have nearly the same protections or regulations as credit cards: If you need to refund an order or find out an item was purchased fraudulently, you may still be expected to pay those third-party platforms.

While the Consumer Financial Protection Bureau ruled that BNPL customers have the right to dispute fraudulent charges in 2024, they’ve since announced that they are pulling back from enforcing that ruling.

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Should I use buy now, pay later?

BNPL can indeed be an easy and convenient way to pay for everyday items, but at the end of the day, you are still taking out a loan that can now impact your credit. Let’s look at what to consider before selecting that option at checkout.

First, ask yourself if you can afford to buy the item outright without installment payments, especially if the item is not a necessity. If not, it may be a red flag that you can’t actually afford to make that purchase. If the item is a want but not a need, consider saving up a bit longer so you can buy it outright — without fear of a late payment.

Consider any other debts you may have, like existing credit card balances or other loans. Even though a BNPL loan is often small, forgetting your installment due date could cost you big time: a late fee could be as much as 25% of the item’s original price, and for those longer-term installments with interest, you could be charged even more. Be sure to check the installment schedule. Some platforms withdraw monthly, while others are bi-weekly.

Using BNPL can be a smart option for a necessary, larger one-time purchase, especially if you know you’re consistent at making payments on time and it won’t become a habit. Additionally, it can serve as a small step towards establishing a credit history — provided you maintain a good payment history — if you have never previously taken out a loan or credit card.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.