New Zealand is introducing important changes to Buy Now, Pay Later (BNPL) services starting in September 2024. This means that all new BNPL customers will need to undergo a credit check. While some might be worried about this change, we’re here to explain why it’s actually good news for you as a Buy Now Pay Later customer.

What’s changing?

From September, BNPL providers like Afterpay and ZIP will be required by law to do credit checks on new customers and for any increases in credit limits. FYI, here’s additional key changes coming that are intended to protect you:

• Options to modify your contract: If you face unexpected financial difficulties, you can request changes to your BNPL agreement.
• Safeguards against excessive default fees: This means you won’t get hit with huge fees if you miss a payment.
• Financial mentoring: If you miss payments, BNPL lenders will provide you with information to help manage your finances better.
• Transparency about credit agreements: BNPL providers must clearly explain the details of your agreement and any changes.

Why credit checks are good for you

Credit checks are a vital part of borrowing safely. Here’s why they’re beneficial for you personally:

• Protecting your financial health: Credit checks help ensure that you don’t take on more debt than you can handle. This protects you from falling into a debt trap that can hurt your credit score.
• Building a positive credit history: Making regular, on-time payments on your BNPL account (or any account for that matter) can actually improve your credit score. A good credit score opens up more financial opportunities in the future, like getting a loan for a car or a house.
• Informed borrowing: Knowing your credit score and understanding your financial situation helps you make smarter borrowing decisions. This can prevent the stress and anxiety that come with unmanageable debt.

Understanding your credit score

A credit score ranges from 0 to 1000, the higher the score the healthier your credit overall.

Credit scores are provided by credit reporting agencies (also called credit bureaus) like NZ-owned Centrix. The scores are used to evaluate someone’s creditworthiness and used by lenders to decide if you’re a trustworthy borrower.

Here is a general breakdown of Centrix credit scores and their ratings in New Zealand:

Excellent: 892 – 1,000

Very Good: 825 – 892

Good: 706 – 824

Fair: 496 – 705

Poor: 1 – 495

Most New Zealanders have a credit score between 500 and 900. A healthy credit score is considered more than 706 which means a better chance of new loan approvals and better payment terms.

You can find out your credit score by requesting a copy of your credit report for free from Centrix HERE. It’s quick and easy to complete the online form, you just need to provide ID like a copy of your driver’s license or passport details.

Final thoughts

These new changes are designed to protect you and help you manage your finances better. By introducing credit checks, BNPL services are making sure you can enjoy the benefits of BNPL without the risks. It’s all about promoting safe borrowing habits and ensuring that you’re set up for financial success in the future.

Staying informed and understanding your financial health are the first steps toward making smart financial decisions. If you are concerned about your credit rating being low, read this article with our top tips about how to improve your credit score.

By Monika Lacey, Centrix Chief Operating Officer