How using buy now, pay later accounts affects your credit score, and chances of getting a car or home loanhome

Buy now, pay later business is booming in Australia, and is projected to become a near $27 billion industry by the end of this year.

Still wildly popular among millennials who are choosing to shun traditional credit cards — but with growing adoption among gen Z shoppers — some forecasters expect it could account for $48b of transactions by 2031.

But as squeezed households and young shoppers hit with soaring petrol prices and the threat of further interest rate rises turn to BNPL providers as a cash flow management tool, many do so unaware of how each new account and purchase is affecting their credit score.

The Australian Retail Credit Association said BNPL is now the third-most used credit product in the country after credit cards and home loans.

And while acknowledging it can be a useful way to spread the cost of purchases, it is still classed as a form of credit and consumers should understand how it works and what lenders can see about their uses.

Changes to the National Consumer Credit Protection Act 2009 that came into effect last year now consider BNPL providers like Afterpay and Zip as low-cost credit contractors that need an Australian Credit Licence to operate.

They must adhere to responsible lending obligations and also need to review a customer’s credit history, which can appear as an enquiry on your credit report.

ARCA said a single enquiry would not automatically harm your credit score, but opening several BNPL accounts or late and missed repayments could raise red flags for lenders.

Chief executive Elsa Markula told Your Money there was a lack of consumer information about how that could affect credit scores

“I think buy now, pay later worked quite effectively to capture the younger market, because it’s flexible and it’s very easy to access, and it looks and feels like a payment tool,” Ms Markula said.

“But I don’t think it’s well understood that it’s actually credit just like your credit card and your personal loan, even your home loan — it’s the same kind of deal, and it has consequences as a credit product.”

Fashion and apparel dominate the BNPL industry but services such as wellness and health — including optical and dental — is becoming increasingly popular.

The PayPal eCommerce Index 2025 report released in November last year found that more than one-in-three (37 per cent) people had used BNPL for online purchases in the past six months — up from 26 per cent the previous year.

The national study of 1022 people aged 18 to 75 showed the while millennials are the biggest users of BNPL for online purchases (53 per cent), gen Z is leading a behavioural shift, and for the first time, more gen Zers used BNPL (38 per cent) than credit cards (32 per cent) for online purchases — making them the only generation to prefer BNPL over traditional credit.

But that the gap is narrowing for millennials too, with 53 per cent using BNPL compared to 54 per cent who used credit cards online in the past six months.

The average value of BNPL purchases varies by generation, but falls between $100 and $160, though some providers do offer credit caps of up to $2000.

Ms Markula said while one or two missed payments on a BNPL purchase would not necessarily spook a future lender assessing someone’s ability to service a home or personal loan, those with multiple BNPL accounts who consistently struggle to meet their repayments could be denied credit.

“That might suggest that you’re taking on too much credit, and you might not be able to afford it,” she said.

“The next credit product you take on might be what makes your house of cards fall over.”

And just as late and missed payments can harm the prospects of securing a future loan, responsible use can potentially help build a positive credit history.

But Ms Marjula warned not all providers report additional information such as on-time repayments, and argued there was room for BNPL operators to add value to the credit reporting system.

“It’s a real shame,” she said.

“If you’re a young customer, and you’re looking at one point in the future maybe going for a car loan or a home loan, you’ve got these buy now, pay later accounts, and you’re paying them on time every month, and you look terrific.

“Those other lenders won’t know that from looking at your credit report, because the information is not being reported at present.

“What I would like to see is buy now, pay later providers participate more in the credit reporting system, and they can choose to do that without the need for further regulation.”