You’ve seen them everywhere. At checkout, that tempting little button that says “Pay in 4 interest-free payments” or “Split it with Afterpay.” Buy now, pay later (BNPL) services like Affirm, Klarna, Afterpay, and Sezzle have become the go-to payment method for millions of Americans, especially younger shoppers who prefer them over traditional credit cards.
But here’s what most people don’t know: these services are now showing up on credit reports. And if you’re planning to buy a house anytime soon, this could seriously impact your mortgage approval.
Let me break down exactly what’s happening and what you need to do about it.
The BNPL Revolution: Convenient But Not Invisible
Buy now, pay later services exploded during the pandemic. The concept is simple: instead of paying for your $400 purchase upfront, you can split it into four payments of $100, usually with zero interest if you pay on time. No traditional credit check, instant approval, and the convenience of spreading out payments.
It sounds like the perfect solution, and for many people, it has been. But the landscape has fundamentally changed.
BNPL Companies Are Now Reporting to Credit Bureaus
In the past, most BNPL transactions flew under the radar. They didn’t show up on your credit report, which meant they didn’t affect your credit score or your borrowing power. That’s no longer the case.
Major BNPL providers have started reporting to one or more of the three major credit bureaus: Equifax, Experian, and TransUnion. Here’s the current breakdown:
- Affirm reports to Experian
- Klarna began reporting to all three bureaus in 2022 for certain products
- Afterpay and PayPal Pay in 4 historically haven’t reported positive payment history but are evolving their policies
- Zip (formerly Quadpay) reports to credit bureaus
This means that what you thought was just a convenient payment method is actually debt that’s being tracked, recorded, and potentially evaluated by future lenders.
How Mortgage Lenders Evaluate BNPL Services
When you apply for a mortgage, lenders aren’t just looking at your credit score. They’re conducting a comprehensive evaluation of your financial health to determine if you’re a reliable borrower who can handle a 15 to 30-year commitment.
BNPL services impact your mortgage application in two critical ways:
1. Your Debt-to-Income Ratio (DTI)
Your DTI ratio is one of the most important factors in mortgage approval. It’s the percentage of your monthly gross income that goes toward debt payments. Most lenders want to see a DTI below 43%, though some programs allow up to 50%.
Here’s where BNPL accounts become problematic. Let’s look at an example:
Before BNPL:
- Monthly income: $5,000
- Car payment: $300
- Student loans: $200
- Credit card minimum: $150
- Total monthly debt: $650
- DTI: 13%
After Adding BNPL Accounts:
- Furniture (Affirm): $80/month
- Electronics (Klarna): $60/month
- Clothing (Afterpay): $40/month
- New total monthly debt: $830
- New DTI: 16.6%
That 3.6% difference might not sound like much, but it directly reduces your borrowing power. If you’re already near the DTI threshold, those BNPL payments could push you over the edge and result in a denial or a reduced loan amount.
2. How These Accounts Appear on Your Credit Report
This is where things get messy. There’s no standardized way that BNPL accounts appear on credit reports. Some show up as installment loans, others as revolving credit (like credit cards), and some fall into an “other” category.
This inconsistency creates challenges:
- Credit utilization confusion: If BNPL accounts are reported as revolving credit, they can affect your credit utilization ratio, potentially lowering your credit score even if you’re paying on time.
- Multiple hard inquiries: Some BNPL services perform hard credit checks that can temporarily ding your score, especially if you’re applying for multiple services in a short period.
- Delinquency reporting: While some BNPL companies don’t report on-time payments, they almost always report missed or late payments. One forgotten payment could show up as a delinquency on your credit report.
- Score discrepancies: The credit score you see on a free app might not reflect BNPL accounts the same way the mortgage lending FICO score does, leading to unpleasant surprises during the application process.
Real-World Scenarios: How BNPL Affects Home Buyers
Let me walk you through three scenarios I’ve seen play out with real home buyers:
Scenario 1: The DTI Creep
A previous client of mine was pre-approved for a $350,000 mortgage. She had been using BNPL services regularly throughout the year, nothing excessive, just spreading out purchases here and there. She had four active accounts totaling $300 per month in payments.
When her lender conducted the final underwriting review, those $300 in monthly BNPL payments were added to her DTI calculation. She was pushed over the 43% threshold. Her options? Pay off all the BNPL accounts immediately or accept a smaller loan amount. She ended up having to look at houses $30,000 below her original budget.
Scenario 2: The Credit Score Surprise
You may have checked your credit score on a free app and saw a solid 720. You feel confident going into your mortgage application. But when your lender pulled your official credit report, they found BNPL accounts you had forgotten about, including one with a late payment from six months prior when an automatic payment failed.
Your actual mortgage lending FICO score? 680. That 40-point difference meant a higher interest rate, costing him approximately $45,000 more over the life of his 30-year loan.
Scenario 3: The Utilization Problem
In this final scenario an individual had three active BNPL accounts that were being reported as revolving credit. Even though they were paying everything on time and the balances were relatively small, the accounts showed high utilization (they were using most of the available “credit” on each account).
That person’s credit score dropped 25 points just from the utilization calculation. It took them three months of paying down the accounts and waiting for the reports to update before they could reapply for their mortgage at a better rate.
What You Need to Do Right Now
Whether you’re buying a house next month or planning for next year, here’s your action plan:
Step 1: Pull Your Credit Reports Immediately
Visit annualcreditreport.com and get your reports from all three bureaus: Equifax, Experian, and TransUnion. Don’t just check one. BNPL accounts might show up on some reports but not others.
Look specifically for:
- Any BNPL accounts you may have forgotten about
- Payment history on those accounts
- How the accounts are categorized (installment, revolving, or other)
- Any late payments or delinquencies
Step 2: Stop Using BNPL Services If You’re House Shopping
If you’re planning to apply for a mortgage within the next six months, freeze all BNPL usage now. Don’t add any new accounts or obligations. The last thing you want is a new debt appearing during the underwriting process.
Step 3: Pay Off Existing BNPL Accounts Before Applying
Create a strategic payoff plan for any active BNPL accounts. Yes, even if they’re interest-free. The benefit to your DTI ratio is worth more than the convenience of spreading out payments.
If you can’t pay off everything, prioritize the accounts with the highest monthly payments, as these have the biggest impact on your DTI calculation.
Step 4: Document Everything
Keep detailed records of:
- All BNPL accounts (active and closed)
- Payment schedules and amounts
- Confirmation of final payments
- Screenshots of account closures
Mortgage underwriters may request this documentation, and having it organized will speed up the process.
Step 5: Be Transparent with Your Lender
When you’re getting pre-approved, mention your BNPL accounts upfront. Ask your loan officer specifically how they’ll factor these into your DTI calculation. A good lender will help you create a strategy to maximize your approval chances.
The Bottom Line: BNPL Isn’t Invisible Anymore
I’m not here to tell you that buy now, pay later services are inherently bad. When used responsibly, they can be helpful financial tools for managing cash flow, especially for planned purchases.
But the critical point is this: BNPL services are no longer invisible transactions. They’re part of your credit profile, and they matter when you’re trying to make one of the biggest financial decisions of your life.
The difference between getting approved for your dream home and receiving a denial letter can literally come down to a few BNPL accounts you forgot about or thought didn’t matter.
Key Takeaways
- BNPL accounts are increasingly reported to credit bureaus and will show up on your credit report
- They directly impact your debt-to-income ratio, reducing your borrowing power for a mortgage
- Different BNPL services report differently, creating inconsistencies in your credit profile
- Missed payments on BNPL accounts are treated the same as missed credit card or loan payments and can significantly damage your credit score
- If you’re planning to buy a house, treat BNPL services like any other form of credit – use them sparingly or not at all in the 6-12 months before applying
Take Action This Week
Your financial future is built on the small decisions you make today. Those four easy payments might seem insignificant now, but they could be the difference between getting the keys to your new home or facing a denial.
This week, take 30 minutes to check your credit reports. If you find BNPL accounts, you’re already ahead of the game. If you’re planning to buy a house, you can adjust your strategy now instead of being caught off guard later.
Remember: knowledge is power, but action is what changes your financial future.
FTC Disclaimer: This is not a sponsored video or article. All opinions are genuinely my own. This post also contains affiliate links and I earn a small commission if you make a purchase after clicking on my links. It does not cost you any extra. Thank you for your continued support to keep the Bri Callis Blog going!
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