How Bill Me Later Programs Affect Your Credit

You may be shocked to learn that nearly 80 percent of Americans are living paycheck to paycheck.

For 800,000 government workers, this became a real issue during the recent government shutdown. Once paychecks stopped rolling in, most of these government employees started scrambling for alternative ways to cover expenses.

So where can you turn if an emergency hits and you’re not financially prepared? Many will look toward their credit cards. But if you don’t have a credit card or have already maxed it out, this might not be an option. Instead, you could look to “Bill Me Later” programs.

What are “Bill Me Later” Programs?

So what exactly is a “Bill Me Later” program? Many people think of it like they would a credit card. But it’s not a credit card, it’s actually a line of credit. Yes, the two are similar because you are given the ability to purchase something today with the promise that you’ll pay it back at a later date. However, a “Bill Me Later” program has a couple advantages over using credit - safety and convenience when making a payment.

Sounds pretty good, right? Well, maybe not. Let’s look a little deeper at how these programs really work.

How do “Bill Me Later” Programs Work?

One of the more popular “Bill Me Later” programs is Paypal Bill Me Later, which recently rebranded to Paypal Credit.

Let’s assume you’re shopping online and you’ve added everything you need to your shopping cart. When you head to check out, you will most likely see an option that says Paypal Credit. When you choose the Bill Me Later Paypal option they will then ask you your birthdate, the last four digits of your social security number, and have you agree to their Paypal service terms. Within seconds you will have a credit decision.

“Every time you request a new line of credit, a hard inquiry is made on your credit report, which may temporarily lower your credit score by a few points. PayPal Credit does this as well,” says Nathan Grant, credit industry analyst with Credit Card Insider.

So Are “Bill Me Later” Programs Worth it?

Credit cards offer many perks to encourage sign ups. Some offer an attractive sign up bonus while others might offer an introductory APR on purchases or balance transfers.

If you already have a Paypal account, you may be wondering if this payment option is worth it. Paypal Credit is very similar because they offer six months with no interest on purchases over $99 (minimum monthly payments are required). This Paypal service can be attractive to some, but it can also be dangerous if you don’t trust yourself to pay off the balance by the end of the six month period.

Paying off your entire balance within six months means you won’t pay interest on the purchase. However, if you still have a Paypal balance after six months, you will be charged interest all the way back to the transaction date. That will make the purchase much more expensive when going with this payment method.

So how do you choose whether to use a credit card or a service like Paypal Credit? For most, it will come down to the convenience for online shopping. Instead of looking for your credit card and entering your information, you can quickly log into your Paypal Credit account and checkout with this payment method.

Paypal Credit also makes a case that they are the safer way to make a transaction online. Because they process transactions through a third-party, there is an extra level of security, something you don’t have when using a credit card.

Why You Shouldn’t Use Your Debit Card Online

At this point, you might just be wondering why you should consider using a line of credit to make your online purchases at all. Why not just use a debit card that’s tied to a traditional bank instead?

There’s really just one reason, but it’s a big one–your debit card is not very secure.

If you make a purchase online with a credit card or a service like PayPal Credit, you can easily cancel a purchase through your provider if your payment information or credit card is stolen. That way, you don’t take the hit for any fraudulent payments made if someone else gains access to your information and tries to go on a shopping spree.

If someone does gain access to your debit card information online, they could quickly clean out your account, leaving you with little money leftover and little protection for getting that money back.

Getting Approved for “Bill Me Later” Programs

Bill Me Later programs are great for anyone who doesn’t feel comfortable using credit cards online. They can also be useful for someone who might not have access to a credit card.

Unfortunately, if you have poor credit, Bill Me Later isn’t going to be for you. Paypal Credit, for example, requires a credit score of at least 650.

Related: What Is a Bad Credit Score?

Should You Use Bill Me Later Programs?

The answer to this really depends on your individual situation. If you don’t have a credit card or another way to make an online purchase, then yes, a bill me later program could be the perfect payment option for you.

However, it’s important to remember that applying for a new line of credit means you’ll have a hard inquiry performed on your credit report. This could lower your credit score by a few points, especially if you’ve had several “hard inquiries” to your credit recently.

Next, consider the initial offer of the bill me later program. If your purchase is greater than $99, you will have no interest for the first six months. This can be attractive if you need a few months to pay off a bigger purchase. However, there are several credit cards available that offer an introductory 0% APR for up to 18 months. Plus, because credit cards report activity to credit bureaus they will help you build a positive credit history.

About the Author

Sean Bryant is a Denver-based freelance writer specializing in personal finance, credit cards and travel. With nearly 10 years of writing experience, his work has appeared in many of the industry's top publications. He holds a Bachelor of Arts degree in Economics.

About the reviewer

Lauren Bringle is an Accredited Financial Counselor® with Self Financial– a financial technology company with a mission to help people build credit and savings. See Lauren on Linkedin and Twitter.

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