Yes. A postpaid plan helps with credit score. A postpaid plan is like a loan or a credit card. Generally, you will be charged the subsequent month for the purchases made in the previous month.  You have an interest-free period within which you can repay the postpaid bill. If you don’t repay on time, it will go down as a late payment on your credit report. However, if you keep on paying the postpaid bills, it will have a positive impact on your credit score. The other major way in postpaid services impact your credit score is embedded finance. 

What Is Embedded Finance?

When you opt for postpaid or pay later services, you can see loans and enquiries from lenders whom you have never approached. These lenders are partners of e-commerce platforms from which you have availed postpaid or pay-later services. This type of credit is called embedded finance. Take the examples of Amazon India and Ola Money. Amazon India has tied up with Capital Float and IDFC First Bank for its postpaid services while Ola Money has partnered with Aditya Birla Finance. If you take pay-later services from these apps, you will see credit offers from their partner lenders. 

How Does Embedded Finance Impact Your Credit Score?

Embedded Finance is a form of credit. So missing out on a payment or delaying a payment will go down into your credit report. It will thus have a negative impact on your credit score. Since this form of finance is like a personal loan, don’t sign up for too many postpaid services in a short period of time. Because each time you do, lender companies conduct enquiries on the borrower to evaluate them. They do so to offer them a line of credit. This could potentially hurt your credit score. 

What Is The Solution?

  • Pay your postpaid bills on time without missing 
  • Don’t opt for a postpaid service unless you need it
  • Don’t opt for too many pay-later services and overstretch
  • You can avoid these services if you already have a credit card. Use the credit-free period of more than 40 days that cards offer instead of using pay later. 
  • The initial credit limit given by partner lenders is currently low, being  Rs. 5,000 to 10,000 in most cases. But, as customers keep paying on time, the credit limit will increase. Thus, users will reap the benefits of good credit behavior.