Here’s How Buying a Pizza Could Tank Your Credit Score

Buy Now Pay Later loans offer a lot of benefits and a couple of huge drawbacks. Now one of those benefits is fading – and that makes one of those drawbacks even more dangerous.

If you don’t know what BNPL loans are, you just might be lucky. They’re essentially installment loans, which means whatever you buy is divided into several payments. But instead of going to a bank, you can use BNPL to buy retail items at checkout. Your first installment is due when you make the purchase, and the others can be interest-free. That’s unlike any other loan. 

Of course, there’s a catch. 

While most BNPLs don’t charge interest, they do charge hefty late fees. Some BNPL lenders charge a flat fee of, say, $10, while others base it on your purchase price. That could be as high as 25% of what you bought. So a couple late payments, and you probably would’ve been better off charging your credit card.

A study by LendingTree last month claims, “41% of BNPL users say they paid late in the past year, up from 34% a year ago.” If you’re wondering how BNPL lenders make money, now you know.

Then again, if you rack up late fees and missed payments, BNPL loans didn’t ding your credit score. That’s because they’re invisible to credit score reporting models. Or they were until now. As Debt.com reported, FICO – the company that created the most widely used credit score – will soon debut a new model that includes BNPLs.

Of course, there are many credit score models. (Believe it or not, you don’t have just one credit score.) However, picture this scenario: You want to buy a new car and get a low interest rate on the loan. Your lender sees one credit score without your BNPLs, but then sees another that includes them. There are multiple late payments and a couple missed payments. That’s concerning. The lender offers you a higher interest rate than you were expecting.

It’s also true that when FICO does something, others are sure to follow. So by this time next year, expect BNPLs to be part of your credit score no matter where you turn. 

Here’s where that can get really dangerous. Back in March, DoorDash and BNPL giant Klarna joined forces to let you pay for DoorDash deliveries using a Klarna BNPL. You read that right. You can now take out a loan to buy a pizza.

That LendingTree survey found, “16% of BNPL users say they’ve already used BNPL for restaurant food delivery or takeout.” 

It’s not far-fetched to imagine you buy a pizza using BNPL. Then you miss a payment, which adds 25% to the cost of that pizza. Life happens, you miss another payment. Maybe you have so many BNPL loans, you forget about that late-night pizza from three months ago – and that other pizza from two months ago. And the pizza from last month. The late payments add up. 

Suddenly, your credit score starts to dip. You can’t get a credit card with decent interest rate. So you get one with a high interest rate. Now you’re juggling multiple BNPLs, a credit card or three, and maybe a car loan. You miss more payments across the spectrum. Now your credit score is really hurting.

And it started with a pizza.

The problem is the convenience of credit. BNPLs make it so easy to borrow, it can be impossible to pay it all back. At Debt.com, we’re seeing more clients who came to us after BNPLs pushed them over the edge of their debts. 

I’m not saying you shouldn’t take advantage of BNPLs every so often. But if you’re using them multiple times a month, you risk losing track. That’s what BNPL lenders are counting on. Now FICO will record that. Eventually, everyone else will, too. If you can’t keep track of what you already owe, call Debt.com. We offer plans that let you save big on your debt, and you only make one monthly payment that gets split among all your creditors – so you’ll never let a pizza cost you more than a pizza.