In recent years, due to the progress made by fintech, the credit ecosystem has undergone a massive transition. Today there are many different kinds of credit solutions available to you in the market. For instance, you can now check CIBIL score by PAN card completely online, while also accessing your credit report within minutes. Another innovative solution in this space is Buy Now, Pay Later (BNPL), a progressive solution that makes access to credit a lot simpler and easier. This is mainly because BNPL solutions don’t have the strict eligibility criteria commonly associated with credit instruments like credit cards or loans. As a result, they are the go-to choice for the new-to-credit individual.
Besides granting access to credit, BNPL enables customers to complete purchases without straining their savings. The choice to pay in instalments not only has short-term benefits of affordability but can also have long-term benefits for your credit score. This is because timely credit payments are known to boost your score. What’s more, BNPL is being recognised as mainstream credit and major credit bureaus like CIBIL are incorporating pay-later loans in their consumer credit reports. All this indicates is that BNPL provisions can be a smart way for you to not only build your credit score but also maintain it.
To know how to best leverage this financing solution and add value to your credit profile, read on.
Grants easy access to credit
If you are among the individuals that have little to no prior experience with formal credit, you may not be assigned a CIBIL score. You can verify this by doing a CIBIL score free check through digital service providers like Bajaj Finserv and notice if you have the ‘NA’ or ‘NH’ score. With such a rating, it will be difficult to avail loans or even get approved for a credit card. In instances where you do get approval, you may not get a high limit or may get offered an unfavourable interest rate. This isn’t ideal and BNPL is a smarter alternative to access credit and build your score.
You will be able to avail BNPL offers at retailers, even with no prior credit experience. Leveraging digital KYC, you can get quick approval and complete purchases instantly, without dipping into your savings. Further, the target market for BNPL is much larger, as it is accessible even by non-salaried individuals who are new to credit. Moreover, defaulting on credit card EMIs can cost you up to 48% in interest, whereas it usually goes up to 24% with BNPL. This makes BNPL a better option for smaller purchases and one that you can use to build your score steadily.
Ensure that you make all payments in full and on time
BNPL payments are just like any other EMI payments and the tenor generally ranges up to 90 days. So, when availing the option at a retailer, ensure that the EMI amount is something you can handle with ease. One way to do this is to pick a longer tenor. You may be allowed to choose between a short or a long tenor and to maximise affordability, pick the latter. This way, you can make consistent payments all through and build your credit score steadily.
Do note that your CIBIL score is based on 4 major factors, wherein your payment history has a 30% weightage on the score. So, prioritise affordability when it comes to payments as defaulting due to a high EMI amount isn’t worth the risk. In fact, defaulting on payments will have an adverse effect on your score.
Diversifies your credit mix
A healthy credit mix always adds value to your credit profile. Having multiple forms of active credit and handling them efficiently boosts your CIBIL score as it accounts for 25% of the score. As such, availing BNPL can be a smart option as these offerings are short-term and bite-sized. By including it into the mix and paying it off in time, you can easily boost your score.
These are the many ways through which BNPL serves as a viable tool to build your credit score, especially as an individual with a low credit score. Along with its affordable and transparent pricing model, instant digital sign-up provisions make it a unique and easy model to avail. Even with a low credit score or minimal credit history, you can utilise BNPL to make purchases, and this benefit has made it extremely popular among Gen Z and millennials. While you can use a credit card or take a personal loan for big-ticket purchases, opting for BNPL is a prudent choice for smaller purchases.
Over time, as you make payments consistently, you can initiate a CIBIL score free check on Bajaj Finserv and note the changes to your score. Bajaj Finserv also offers a customised CIBIL health report, which contains crucial information about your credit profile and its standing. Access it to learn the impact of your credit behaviour and track the impact of your finances on your score.
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