Laybuy receives complaints after misleading credit score claim

A girl looking at her laptop in shock

May 27, 2021

Buy Now Pay Later (BNPL) provider, Laybuy, has undergone investigation by the Advertising Standards Authority (ASA), the UK’s advertising regulator, after a complaint was made by a British consumer.

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Customers given wrong impression about credit check

In February this year, the following was stated on Laybuy’s website:

“We can do a secure credit check - it’s quick and doesn’t impact your score”.

One borrower whose credit rating was checked by Laybuy, however, noticed that their credit score had decreased after this, despite being informed that it wouldn’t be negatively impacted.

After spotting this, the consumer complained to the ASA who subsequently investigated the situation.

What was Laybuy’s reaction?

The BNPL lender admitted that the statement was placed on its website by mistake and it was removed prior to receiving information regarding the complaint by the ASA.

The provider vows to ensure that any marketing communications in the future will be “subject to improved internal processes and controls”. The company is also communicating with credit reference agencies (CRAs) and report providers to get rid of any negative impacts on consumers’ credit scores that were caused by credit checks carried out by Laybuy.

What was the ASA’s verdict?

After the ASA's investigation, the regulator clearly saw that the consumer’s credit score had dropped just after Laybuy carried out the credit check on them, confirming that Laybuy’s claim stating that a credit check wouldn’t affect people’s credit ratings was a breach of the advertising regulations, as it misled UK consumers.

In 2020, the ASA stated that Buy Now Pay Later adverts must clearly inform readers that customers will be agreeing to a type of credit agreement if they sign up to spread the cost of purchases with them. BNPL companies were given until 2nd March to alter all forms of advertising to make this very clear.

Are all BNPL schemes a form of credit?

Yes, if you sign up to a BNPL agreement with the likes of Laybuy, Klarna, Clearpay, etc, you are essentially borrowing money to pay for your item or service now, but paying for it at a later date, so this type of contract is similar to other forms of credit like loans and car finance agreements.

Just like when you apply for a loan or credit card, the company will need to do a credit check on the applicant to see what their credit rating is like; the better the credit history, the more reassurance the lender has that you’ll make your repayments on time and in full. The lower your score, the more risk you pose to the lender, so the less inclined they’ll be to give you credit.

Most BNPL providers will perform a credit check when you apply, but some don’t require one, such as companies Clearpay and Zilch.

Whichever company you choose to get a BNPL deal with or when applying for other types of credit like loans and mortgages, make sure you fully understand how your credit score could be impacted; i.e. will they be carrying out a hard or soft credit check?

You might like: What affects your credit score?

Credit checks: Soft vs hard inquiries

As you might expect from the names, if a lender carries out a soft credit check on you, this means your score won’t be affected. A soft inquiry might occur if an employer needs to check your rating or if you are checking your score yourself, for example.

A hard inquiry, on the other hand, is more severe and this is when companies need to fully understand the level of risk you pose, such as mortgage or loan providers. A hard check can stay on your report for 2 years, so it is always advised that you only apply for credit agreements that come with a hard credit check if you know you are more than likely to be approved, as rejected applications will show up as red flags to future lenders and couple impact your score.

Read more: What is a credit check?

Can BNPL schemes hurt your credit rating?

Unless the lender has stated that it will carry out a hard inquiry on your credit history (this is unlikely, so steer clear from any providers stating this), a Buy Now Pay Later scheme shouldn’t impact your score provided you make all repayments on time and in full.

As with any form of credit, missing repayments can negatively affect your credit rating and will set alarm bells ringing if future lenders see this on your report - they are likely to decline your application for credit or give you a bad credit deal with high interest rates, costing you even more to borrow overall. 

According to Experian, late or missed payments will stay on your report for 6 years, so it’s best to avoid credit agreements altogether if you’re worried you might not be able to make the repayments. If you do get credit, always be sure to set yourself a reminder or set up a direct debit to prevent this from happening.

Lenders and BNPL providers have the right to inform credit reference agencies about any missed payments - MoneySavingExpert Martin Lewis states that BNPL lenders “insist this is used as a last resort” and “once BNPL moves under Financial Conduct Authority Regulation, it’s possible that providers may be more likely to report later or missed payments to credit reference agencies”.

Regardless of whether some BNPL providers inform CRAs as a last resort, you must keep up with all repayments to avoid damaging your credit rating - otherwise, you’ll be spending a long time trying to build it back up and you’ll struggle when it comes to applying for other types of credit in the future, like mortgages and credit cards - or you simply won’t be offered the best deals.

You might like: 12 ways to improve your credit score

Always check your eligibility before applying for credit

If you’re ever considering borrowing money in the form of a BNPL scheme, loan, mortgage, credit card, car finance deal etc, it is always worth checking your credit score and your eligibility beforehand, so that you know where you stand and you’ll have a good idea as to whether or not you will be accepted for a good deal.

If your credit score is low, avoid applying for credit where your rating could be impacted further. Instead, focus on building it back up.

If you haven’t checked your score in a while or you’re considering getting credit, get a detailed report with multi-agency reporting site Checkmyfile. The first 30 days are free, but it’s easy to cancel if you don’t want to pay for their services after the free trial period.

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Alternatively, check out our related guides for further information and handy tips.

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