Does Amazon Monthly Payments Affect Credit Score?
How does the use of Amazon monthly payment options impact the credit scores of consumers?
Amazon provides a monthly payment solution known as Amazon Monthly Payments so that customers can pay for eligible purchases in 5 installments spread across a month. This can make higher-priced commodities seem cheaper since the principal amount of money is reduced. However, some shoppers are concerned whether such monthly payment options would affect their credit scores. In this article, I will discuss what Amazon Monthly Payments are and whether or not they should be concerned with credit.
What are monthly payments on Amazon?
Provided the item costs between $50 and $1,500 and is bought from qualified vendors, Amazon Monthly Payments lets Prime members make five equal monthly payments for an item. The first sum is paid upon shipping; the Shopper's Amazon account is invoiced for the remaining thirty-day cycle. No interest or extra fees are levied; there are no down payments either.
The individual should have an Amazon Prime account and a debit or credit card connected to an account to be paid monthly. Monthly payments from Amazon claim not to influence your credit score. Nonetheless, it is also important to know how these payment schedules are handled as it helps to avoid defaulting the credit rating throughout the procedure.
Monthly payments and their effects on credit reports
When buying something for the said installment price on Amazon, Amazon pays for the whole sum and lets you pay the amount in installments. However, these do not reflect on the credit bureau reports like Experian, Equifax, and TransUnion as an installment loan. That means that you will not be able to see Amazon Monthly Payments on your credit report.
As there is no reporting to the credit bureaus, the monthly payment offered by Amazon cannot impact the credit scores. However, if all the payments that are included in these payment plans are made on time, then they will not have negative impacts on the credit score.
Possible second-order effects on credit scores
The fact that Amazon does not explicitly state that these are installment plans is that there are some ways in which these plans could potentially harm your credit in the future if you are not careful. Here are some considerations:
The credit utilization ratio is the measure of the credit card limit used by the cardholder in a consumption period divided by the total credit limit assigned to him or her by the credit card company.
If you buy something using Amazon Monthly Payments and use your credit card for making payments, then it will be considered that the full amount has been charged to your account although Amazon is giving you the flexibility to pay this amount every month. That means the initial full purchase amount will form part of your total credit card balance and credit utilization rate until the payment is made in full.
Using more credit is also unhealthy for your credit ratings, and therefore, having most of your credit limit used is bad. Therefore, it is advisable to ensure that large purchases on the Amazon Monthly Payment do not lead to a high outstanding card balance that pulls down your credit utilization ratio.
Possibility of Late Payment Penalties or Interest Rate
Amazon Monthly Payments, after charging the initial fee, additional installments are taken on a 30-day cycle from the payment method provided. Nonetheless, if the selected payment method is invalid or declined when Amazon attempts to debit an installment charge, you may incur late fees from Amazon or interest charges if you use a credit card.
They can reduce your credit score if they are reported to the credit bureaus as types of penalties and interest charges. Therefore, it is important to pay some extra attention to make sure that your payment method always has the necessary amount when the payments are due.
Successful Payment for Account Closure
Of the monthly payments, Amazon states that if a payment cannot be taken because of insufficient funds or for any other reason, then it may suspend your account and require repayment of the entire balance, and the unpaid balance may be turned over to a collection agency or the courts.
When you have an account sent to collections or you receive a legal judgment against you, your credit scores are bound to drop. It is wise to select monthly payments you can easily manage to avoid account closure and collection of unpaid dues.
Strategies to Employ While Using Amazon Monthly Credit Without Compromising Credit
If you take some simple precautions, Amazon's monthly installment plans can be used without negatively impacting your credit scores.
- The only times that one should agree to monthly payments are when you are buying an item that is relatively cheap and does not strain your budget. Do not borrow lest there is no interest incurred.
- When charging a credit card, consider the impact on the overall credit card balance and credit utilization ratio. It is important to keep the utilization below 30% in general.
- It is important to keep track of your payment method balance to avoid insufficient funds when subsequent payments are made. If necessary, set payment reminders to ensure that you or your employees will not forget about the due date for payment.
- The worst thing that you can do is to close accounts because of non-payment and even though it is much better to take small losses in other places for five months, you should not do this.
If you make all five payments on Amazon through Amazon Monthly Payments in full and on time, it does not reflect on your credit report or contribute to your credit score. However, it is wise to be cautious and economical about such plans so that you do not encounter some difficulties. Use a free service to track your credit scores to make sure that these payment plans do not have any negative ramifications.
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