Does Afterpay Affect Credit Score?
If you make regular payments on time and your credit limit is low, Afterpay may not impact your credit score.
Buy now, pay later or BNPL services such as Afterpay have become quite popular in the recent past. These payment platforms enable a buyer to pay for a product in installments, while the seller delivers the merchandise at once. This deferred payment model is popular among many shoppers. However, one major concern is how Afterpay affects your credit. Let's cut to the chase.
What is Afterpay?
Buy now, pay later is a segment within the financial services industry and Afterpay is one of the key players in this market. The Australian firm offers consumers the option of paying for goods bought from partner merchants in four installments spanning six weeks. Other than the installments that the customer pays weekly, bi-monthly, or monthly there are no other charges like interest fees or late fees provided that the installment is paid on the mobile app. Late payment penalties may also be incurred if you fail to remit your payments on time, although these are minimal.
How it works: The Afterpay app is free to use for consumers, but the company earns money by taking a percentage of each purchase price from the merchants. So stores suffer the loss while the buyer gets an opportunity of paying for the goods in installments as if they were paying an interest on the price. Afterpay now has over 16 million customers and partners with 100,000 merchants worldwide.
Does Afterpay Check Credit Score?
When you join Afterpay, the company pulls a soft credit check on your credit report to verify certain aspects of your credit profile and identity. Importantly, let me explain that this is a soft credit check and does not impact your score at all. Soft checks can be used by lenders to access your credit data without the check being reported.
Afterpay does not perform a hard credit check on your credit report. Hard checks need your permission and do pull a small, temporary ding on your credit that can slightly affect your scores. However, Afterpay does not engage in the sort of credit check that might harm your credit rating.
The company also mentions that they may also reevaluate your eligibility from time to time if you remain a client of their services. However, these occasional soft checks wouldn't affect your credit scores in any way as well.
Does Afterpay report credit bureaus?
However, Afterpay itself does not transmit any payment details to credit reference agencies such as Equifax, Experian, or TransUnion. What this means is that your utilization of Afterpay installment plans does not leave a mark on your credit reports. Hence, if you can make all the installment payments on time then making the Afterpay payment also will not have a positive or negative impact on your credit scores.
However, if you were ever to become delinquent on Afterpay payments, fail to pay an installment, or disregard due fines in a way that causes the account to be forwarded to a collection agency, then the collector could report the unpaid balance. This sort of negative item could potentially lower your credit scores just like any type of debt collection lowers your creditworthiness. However, after-pay payments are appropriately managed when it is paid on time which does not cause credit harm.
The only way that being responsible with Afterpay would affect credit would be if using the buy now pay later option means avoiding going over the limit on credit cards. High balances and missed payments on statements of credit cards also harm credit scores as much as it is possible. However, Afterpay itself does not get reported unless something goes wrong or it is involved in a scandal.
The pros and cons of credit for you
Making payments through Afterpay and following the payment plans is as responsible as handling a credit card or loan responsibly. However, compared to those credit products, timely Afterpay payments do not provide any direct help to your credit. Still, advantages for your credit include.
- No hard credit inquiries improving your scores
- No chance of being penalized with further fees and interests as is the case with revolving card balances
- Probable discouragement from exploiting credit cards and accumulating balances
Downsides relating to credit are unlikely but do include.
- Another disadvantage of eligibility checks is that they may review credit from time to time.
- Accounts that are more than 180 days past due could be handed over to collection agencies.
- It doesn't help to build a positive payment history as credit cards/loans do
Thus, as long as you adhere to the payment schedule, Afterpay does not assume any credit risk. But you also do not build good credit references that may benefit you in case of seeking loans from other lenders in the future.
Alternatives to Evaluate
However, if you enjoy the kind of flexibility that Afterpay offers where you can break the payment into equal installments, you may also consider other similar services. Other examples include Sezzle, Affirm, Klarna, and PayPal Credit which all provide deferred installment plans without the need to have good-robe credit. The fees of these companies differ and these may allow building credit line usage history when used appropriately when incorporated in the building of the revolving credit line.
It is advisable to compare different buy now, pay later platforms so that you can identify the one that best suits your needs. Those who would like to be more proactive in credit building could probably consider those credit-building services that submit information to credit bureaus. If maintaining current credit standings is the aim, non-reporting firms such as Afterpay are therefore reasonable options. Understanding the existing policies on eligibility checks, late fees, collections, and credit reporting of various deferred payment processors helps to decide on which program is best for you and your credit profile.
The Takeaway
However, Afterpay does not affect one's credit scores, or convey a record of the installment plans being bought to the three main credit reporting agencies. However, if you make sure you adhere strictly to Afterpay's fee-free payment options and do not instigate collections, using this service should not impact your credit rating. It does not have any impact on credit scores, but Afterpay can be useful as a more accessible type of financing for buyers who may need flexible payment options. Those who want to establish a credit history in the long term might consider looking into options that positively contribute to their credit score. However, for the majority of Afterpay consumers who do not have the desire to build credit, it securely enables consumers to make affordable purchases in installments without risking or reporting credit.
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