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myFICO: Buy Now, Pay Later or Credit Cards: Which Should You Use?

SAN JOSE, Calif.–(BUSINESS WIRE)–Buy now, pay later (BNPL) financing has exploded in popularity over the past few years; buyers have adopted the option of splitting their purchases into several payments. Even traditional credit card issuers have started offering installment payments as an option. Choosing between BNPL and a credit card can be difficult, especially since both have attractive features. Here are some things to consider, from myFICO:

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Buy now, pay later Advantages and disadvantages

Instead of paying for purchases in full at checkout, Buy Now, Pay Later lets you split your purchase amount into a short installment plan. Your first payment is usually due on the day of your purchase and the remaining payments are spread over several weeks. Usually there is no credit check and the application process is relatively quick and easy. You get a predictable, short repayment plan, and in many cases, there’s no interest.

Since your purchase is split into a few installments with BNPL, your installment payments will be higher. For example, a $1,000 purchase with four bi-weekly payments costs $250 every two weeks or $500 for two months. It’s important to be sure you can afford the payments before you commit. Note that if you don’t make your payments on time, or if you don’t pay your balance before the end of the interest-free period, you could incur significant late fees and interest charges.

One of the disadvantages of the BNPL is that it offers fewer consumer protections, such as the ability to dispute a transaction. The industry is relatively new and unregulated, so payment terms are not standard across the industry. You should carefully read the terms of each provider to understand prices, interest, reimbursement, etc.

Keep in mind that BNPL providers may report to credit bureaus, so your account history may impact your FICO® Scores. First observations of a a recent FICO study reveals that even though the change was small, on average people tend to lose a few points when newly opened BNPL accounts flagged as installment loans are included in credit data. The impact could be more pronounced if you have less than four accounts on your credit file or less than three years of credit history. (Note that this may also be the case when opening other types of credit, including credit cards!)

BNPL versus credit cards

A credit card gives you more time to pay and more places to use your card. Using a rewards credit card allows you to earn rewards that you can accumulate and redeem for flights, hotel stays, money in your bank account and more depending on the rewards program of your credit card. Some cards offer additional benefits like rental car coverage, extended warranty, purchase protection, and trip cancellation insurance.

Rather than requiring a fixed monthly payment, credit cards offer the flexibility of making minimum payments toward your balance. However, unless you are under a 0% APR promotion, you will be charged interest each time you carry your balance over from one month to the next. Interest rates vary and your exact interest rate could be high depending on your credit risk and the card you choose.

Opening a new credit card is not as simple as taking out BNPL credit. You must complete an application and go through a credit check, which may have a slight impact on your FICO® Scores due to associate inquiry displayed on your credit report. Many credit card issuers can approve your application immediately, but you may have to wait for your card to arrive in the mail before you can use it.

BNPL has become so popular that several credit card issuers now offer installment financing for certain purchases. Options vary by credit card, but most set a minimum purchase amount and a flat fee to participate. You may have the option of funding longer, such as 18 or 24 months. However, since most plans charge a fee, you won’t save money by using your credit card, but you will get the other benefits of using your card.

Which option should you choose?

Both options have their pros and cons. BNPL could be handy when it comes to small, short-term purchases, but incurs a fee if you don’t repay, while credit cards offer more flexibility for larger purchases, as well as the chance to earn rewards. rewards, as long as you agree with the interest cost. It’s important to remember that credit cards and some BNPL accounts can be reported to the credit bureaus, so do your best to pay on time to positively impact your FICO® scores.

Whichever option you choose – and you can use both for different types of purchases – it’s important to keep track of how much you owe to avoid being overburdened.

About myFICO

myFICO makes it easy to understand your credit with FICO® Scores, credit reports and alerts from all 3 bureaus. myFICO is the consumer division of FICO – get your FICO scores from the people who do FICO scores. For more information, visit