The Silent Credit Score Killers: BNPL, Co-Signed Loans, and Being a Guarantor

When we think about credit score killers, most people imagine late payments or loan defaults. But the truth is, there are silent traps that can hurt your credit health even when you believe you’re managing things well. In India’s fast-changing credit ecosystem, two big culprits stand out—BNPL (Buy Now, Pay Later) services, and agreeing to be a co-signer or guarantor on someone else’s loan. These look harmless at first glance, but they can quietly chip away at your score if you don’t handle them wisely.

Let’s break them down in detail.

The Hidden Risks of BNPL (Buy Now, Pay Later)

BNPL has become hugely popular, especially with younger borrowers. Apps and fintechs promote it as a hassle-free way to buy gadgets, fashion, or even groceries in easy installments. You don’t need a credit card; just sign up, swipe, and pay later. Sounds convenient, right?

But here’s the catch:

• Every BNPL transaction is a form of credit, and it gets reported to credit bureaus like CIBIL.
• Even if the EMI is small, missing or delaying a single payment can dent your score.
• Unlike traditional loans, where you are aware of your debt, BNPL can accumulate quietly because of multiple small purchases.

For example, buying three different items with three BNPL providers can leave you juggling multiple EMIs without realizing the pressure. And if you miss one? Your repayment history takes a hit.

BNPL also creates what lenders call “credit hungry behavior”. If you are using too many BNPL services, banks and NBFCs may see you as financially stretched, even if you’re paying on time. This reduces your chances of securing larger loans like home or personal loans in the future.

Pro Tip: Treat BNPL just like a loan. Use it sparingly, track every installment, and clear payments on time.

Co-Signed Loans: When Someone Else’s Mistakes Become Yours

Many people in India agree to co-sign a loan for friends, family, or colleagues out of trust or obligation. On paper, you’re just a supporter. But in reality, you are equally responsible for that debt.

Here’s what can go wrong:

• If the primary borrower delays or defaults, your credit score gets affected too.
• The missed EMI shows up on your credit report even though you never used the money.
• Lenders will hold you accountable, and recovery agents may reach out to you directly.

For instance, imagine co-signing a personal loan for a cousin. He loses his job and skips repayments. Suddenly, your CIBIL score takes a hit, and when you apply for your own car loan, it gets rejected because of “existing obligations”.

Pro Tip: Never co-sign a loan unless you are ready to step in and take over repayments yourself. Think of it as your own loan, because that’s how banks treat it.

Being a Guarantor: The Silent Liability

In India, it’s common for banks to ask for guarantors on business loans, education loans, or personal loans. Many people agree without fully understanding what it means. But being a guarantor is not just a formality—it’s a legal responsibility.

If the borrower fails to repay, the lender can:

• Demand full repayment from you.
• Mark you as a defaulter in the credit bureau records.
• Initiate legal proceedings against you.

This means your financial credibility is at risk for a loan you never benefited from. Even if the borrower pays on time, just being a guarantor increases your credit exposure, making banks cautious about giving you new loans.

Pro Tip: Before signing as a guarantor, evaluate whether you can afford to repay the entire loan if things go wrong. If not, politely refuse—it’s better than damaging your own financial future.

Final Thoughts

BNPL, co-signed loans, and guarantor responsibilities may seem small or harmless at first, but they carry long-term risks that most people ignore. Unlike obvious mistakes like missing EMIs, these are silent killers of your credit score, waiting to surprise you when you apply for an important loan.

To protect yourself:

• Use BNPL sparingly and always repay on time.
• Avoid co-signing unless you fully trust the borrower and can afford the liability.
• Think twice before becoming a guarantor—remember, it’s not just a favor, it’s a financial responsibility.

Your credit score is like your financial reputation—it takes years to build and only one wrong move to damage. So, stay alert, make informed choices, and don’t let these silent traps hold back your financial growth.