Do you have bad credit, but still need a reliable way of borrowing money, whether for your home or business? Using “buy now, pay later” for bad credit scores can help those individuals raise their ranking and qualify for additional financing options in the future. But “buy now, pay later” can also cause those with already low credit to sink even further into debt if they don’t manage the expense well or have additional bills come up that stress their already tight budget.
How do you know if “buy now, pay later” can help your bad credit and is right for you?
Keep reading this guide to learn more about your credit score, what you can do on your own to mend any damage and how to assess a “buy now, pay later” offer to determine if it’s going to be a positive influence on your finances.
What is Your Current Credit Score?
Maybe you have not the faintest idea what your current credit score is. You are not alone. Many people feel left in the dark when it comes to their credit. They feel like they are at the whim of credit bureaus who have access to information that could cause them to sink or swim, but they don’t know what that information is. In reality, this is false. By law, you can access three copies of your credit report per year by going to the website AnnualCreditReport.com.
There, three of the major credit bureaus, Experian, TransUnion and Equifax are required to compile a report once per year examining the factors that influence your credit score. You can access all three reports at once, or you can view each at different times during the year if you would like to monitor your credit periodically.
Your credit report will include all the factors that influence the score that bureaus assign to you, such as whether you have made late payments, whether any loans are in default, the amount of credit you qualify for, the length of time your accounts have been open and the total amount you owe. While the credit report will not specifically give you a score, it will help you identify any problems with your credit profile.
For example, if a loan shows up as still open or in default but you paid off the total years ago, there may have been a mistake with the loan agency’s reporting system. You can call the original lending office
and then write a letter to the credit bureaus explaining the mistake and asking them to absolve it from your record. It’s very common to have mistakes on your credit report, so it is worth it to check out yours to ensure it does not damage your credit reputation unnecessarily.
If you want to know your actual credit score, you can sign up for a free monitoring service with your bank, or ask your current credit card company if they offer monthly FICO score checks. Today, many banks and lenders send their clients a report on their FICO score at the bottom of their monthly statement as a helpful way to assist in credit monitoring. Once you know your score, you can start to determine if you have bad credit, good credit, or – hopefully – excellent credit.
Where Does Your Score Rank?
For the most part, if you have a score of 740 and above, lenders consider your credit excellent. A score between 680 and 740 is considered “good credit”. You can squeeze by with an acceptable credit score of 620 to 680, but below 620 is considered bad, subprime, poor and many other descriptive words basically stating lenders are less likely to work with you and more likely to charge you higher interest rates, more fees and approve you less often.
If you have bad credit, don’t worry, you are in the majority. Whether due to past recessions, spikes in unemployment or the housing crisis, many American adults have subprime credit scores – 56% of them –
and are unable to take advantage of the best interest rates and offers. If you didn’t have health insurance during a health crisis or you lost your job right when you needed to send your kids to college, borrowing excessively could have sunk your finances. Not having an emergency fund could have caused you to overuse credit for a family emergency and struggle to make the payments. There’s a myriad of
reasons why your credit may be damaged, but no credit score is unrepairable – that’s the good news.
Why Should You Care About Your Credit Score?
If you have been struggling with your credit for years or even decades, maybe you are starting to get to the point where you do not even care about it anymore. You’re starting to ignore it because you can’t take the stress. You’ve tried to fix it but it doesn’t seem to budge and you don’t know what to do. Even though you may feel defeated, you are not. If you give up on your credit, you will never experience the wonderful benefits a good credit score can provide throughout your life. It is worth it to keep working on raising that score, and here’s why.
You will not always be able to buy everything with cash. If you want to own a home, pay for a wedding, take your kids on vacation and experience many other fun and exciting life milestones, you will probably need financing to do so. While it may not always be the best mode of operation, using financing is sometimes a smart move if you have a low or no interest offer waiting for you. The problem is, you will never have this offer if you continue to ignore your credit.
It gets even more serious. Future landlords will request a copy of your credit report. Even future employers can run your credit, especially if you are going to work in finance and handle other people’s money. They are going to want proof you are responsible with your own first. You could realistically be turned down from a job due to a subprime credit score. Is that what you want? You have to make building your credit back up a priority, and a fast “buy now, pay later” offer for bad credit could help you turn things around.
Are You Struggling with Debt?
If you are currently in debt, making a debt payoff plan should be your first step in fixing your credit rather than applying for additional credit and incurring more debt. Make a list of all of your outstanding debts, in order of highest interest rate first. Also make a list of all your available income sources, subtracting your necessary monthly bills. The remainder of the money should go towards debt payoff every single
month, starting with the highest interest rate debt first. Until you have made significant progress and have a much lower debt ratio, you will not see much improvement from opening a “buy now, pay later” account, even if your bad credit is horrendous.
Credit bureaus want to see that you have the ability to pay back money, not simply take out additional loans – it’s not that helpful of a fix. If you are seriously unable to manage your current debt, make an appointment with a debt consolidation firm and consider your options. In some cases, they may be able to negotiate a lower interest rate for you and condense your payments so they are easier to manage month to month.
What is “Buy Now, Pay Later” Financing?
If you are ready to start building back your credit, you’ve done the research and you know what it entails, you can start to get excited. You are going to seriously improve your quality of life and relieve a ton of stress from your mind…but first you have to get started.
Credit experts always say the best remedy for any bad credit score is consistency and time. You can’t build back a ruined score overnight, but you can make gradual monthly payments towards your goal and see a payoff over the course of months and years.
If you have bad credit, it’s not always easy to get approved for a low interest installment loan. In fact, it might be pretty much impossible, even though this would probably be the best way to increase your score. But thankfully, you have other options. “Buy now, pay later” for bad credit applicants is easy to get, even if you have subprime credit. For the most part, all you are going to have to prove is that you live in the United States, you’re not currently bankrupt and you have an income flow.
If you meet those requirements, you are approved online or in-store for a certain amount of buying power.
Once you make your purchase, you can follow their payment plan over the course of months and make on-time payments which are then reported to credit bureaus. In many cases you can get approved instantly with no waiting period so you can start the process right away.
The Downside to “Buy Now, Pay Later” for Bad Credit
Here’s the not so good news about “buy now, pay later” if you have bad credit. You are probably going to be charged a very high interest rate. If the item you plan on purchasing is expensive, you might need to make a down payment up front to secure the financing. You also may be charged a monthly fee to keep your account open, sometimes called a “maintenance” charge. You can also only use the credit at the place where it was issued, so no using to purchase items from outside that business. If you’re willing to deal with these drawbacks, you can probably get approved today, but as with all factors involved with credit rebuilding, there is a literal price to pay.
How to Borrow Responsibly
If you are considering “buy now, pay later” for bad credit, you know how easy it is to slip into complacency when it comes to borrowing. The only way to make sure that does not happen with a “buy now, pay later” account is to understand your commitment fully. You must read the fine print of the agreement. Do not take the lender’s word for anything. Make sure that you know the exact fee schedule, the specific interest rate and how much you will be paying over the course of the entire loan.
Also, consider if you are ready for this step at all. Are you feeling like you have a better understanding of what it is to incur debt and the responsibilities needed to pay it back? Do you have guaranteed income for the next few months so you can be sure to make your payments on time?
Do the payments fit into your budget completely? Will this cause you additional stress and put a strain on your finances? You have to make sure you have no other more pressing financial matters that could come up and derail your plans to pay it off on time. Otherwise, a “buy now, pay later” deal for bad credit could actually make your credit worse, not better.
Learn more about “buy now, pay later” offers for bad credit prior to applying. Read reviews on the company you may work with. Talk to a trusted friend or financial adviser to obtain sound advice on your financial situation and whether this deal will really help you in your quest to better your credit profile. It is worth it to do your homework beforehand rather than get caught up in the excitement of getting approved for credit.
It can be a rush, but there is nothing that takes the excitement away more than seeing a huge bill arrive in the mail – one that you cannot afford to pay. Always borrow responsibly with “buy now, pay later” for bad credit if you someday want to overcome your bad credit and move on up – maybe even reaching “excellent credit” status.