Don’t derail mortgage borrowing with new ‘easy payment’ option

A home is the biggest purchase most people make. To make it happen, though, buyers have to be mindful of their little purchases for weeks and months ahead, all the way to closing day.

Running up credit card charges can sink a credit score, a key determinant of mortgage eligibility.

“We warn them to be careful” anytime borrowers are teetering near limits, says Reed Brunzell of Cardinal Financial in Glenview, Illinois.

Now, a new payment option — neither credit card, debit card or cash — has exploded in popularity.

Known as Buy Now Pay Later, or BNPL, anyone who has been shopping online has probably seen these offers for “four easy payments, with no fees and zero interest.”

A recent survey by Ascent by Motley Fool found one-third of consumers have tried BNPL, but 22 percent indicated they were unsure of all the terms.

A release from myFICO.com, a company that provides credit score information, explains that many of the BNPL services instantly approve consumers without performing a so-called hard credit check that could negatively impact a credit score.

But many BNPL services “require you to provide your credit or debit card information,” and the installment payments are automatically drawn on these accounts.

When payments are linked to checking through your debit card, “you could default if your payment is declined due to insufficient funds,” with a resulting hit to your score, myFICO.com warns.

When a credit card is used, consumers must be sure to pay the BNPL balance in full and on time each month. “Otherwise, carrying a balance will lead to interest, and late payments will incur a fee and potentially damage your FICO score.”

BNPL is a fastgrowing trend, but it’s still one that consumers may not realize could have credit score implications.

“So far, only one borrower has asked me about it,” Brunzell says.

But it merits exploring, especially if a borrower’s score or debt-to-income ratios aren’t well above the limits, Brunzell notes.

“If you are an impulse buyer and you enter into three or four of these, it could mess things up,” he concludes.