CIBIL score: Can BNPL also lower your CIBIL score? Before shopping this Diwali, here's what to know...

With the arrival of the festive season, shopping in the market accelerates. Everyone wants to spend on gifts, gadgets, and clothing. However, amid rising expenses, many people are now resorting to new digital finance services like Buy Now, Pay Later (BNPL).

This service is becoming increasingly popular in cities as well as smaller towns. People are now choosing installment payments instead of instant payments. However, many people are unaware that BNPL directly impacts their credit score.

What is Buy Now, Pay Later?
BNPL is a digital payment option that allows customers to purchase goods or services, but pay later in installments. It can be considered a short-term loan. Its working principle is simple. The BNPL company pays the full amount to the merchant upfront and then collects the money from the customer in the form of EMIs (Equated Monthly Installments).

In essence, this is similar to a credit card. In India, this facility is offered by Reserve Bank of India (RBI)-regulated lending institutions or certain global finance companies that are permitted to operate in the country.

How does BNPL impact your credit score?

The impact of BNPL depends entirely on how wisely you use it and whether the service provider reports your payment activity to credit bureaus (such as CIBIL, Equifax, Experian, CRIF High Mark).

Impact of Credit Checks
BNPL companies typically perform two types of credit checks:

Soft Check: This does not impact the credit score.

Hard Check: This may temporarily lower the credit score slightly.

If you frequently use BNPL services and face a hard inquiry each time, your score may drop. Therefore, you should avoid opening loans or BNPL accounts repeatedly. If you plan to use BNPL services frequently, it's best to obtain a credit card. This will prevent repeated hard inquiries.

Benefits if you pay on time, but disadvantages if you don't

If you pay every EMI on time and the company reports your payment details to the credit bureau, your score may increase. This creates a positive credit history and makes it easier to obtain a personal loan, home loan, or credit card in the future.

However, missing or delaying a payment can negatively impact your score. In some cases, your CIBIL score can drop by up to 100 points, especially if payments are repeatedly late or remain pending for a long time.

Not all BNPL companies report
It's important to note that not every BNPL company provides your information to credit bureaus. For example, some international BNPL providers (like Klarna or Afterpay) provide limited reporting in India. This means that sometimes you may not see an improvement in your score even if you make timely payments. Therefore, before using a BNPL service, be sure to check whether the company reports your payment details.

How to Manage BNPL Responsibly
Using BNPL correctly can make it beneficial. You can keep it safe for yourself with a few simple steps:

Create a monthly budget: Create a monthly spending plan that includes BNPL EMIs.

Don't open multiple accounts: Opening too many BNPL accounts can weaken your credit profile.

Set up auto-payments: Keep the auto-debit feature on to avoid missed payments.

Check your credit report regularly: So, any errors or incorrect entries can be corrected immediately.
Consult a financial advisor: If your EMI burden is increasing, revise your plan immediately.
Notes regarding BNPL
If your credit score is already low, it's best to stay away from BNPL.
Using multiple BNPL services simultaneously can weaken your credit profile.
Carefully read the terms and conditions of each BNPL app.
Some companies charge late payment fees and hidden charges.

Why is financial understanding important?
BNPL, credit cards, and personal loans—all these financial tools are useful only if used wisely. Credit taken without planning can gradually turn into a debt trap. Often, people take loans just because of the excitement of festivals or shopping, and later, the EMI burden increases.

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.