One of the popular buy-now-pay-later services is Afterpay, an application that allows users to make purchases. The app pays for those purchases in installments, usually free of interest or fees if paid on time.
As BNPL services continue to grow, many users may wonder whether using Afterpay will influence their credit score positively or negatively. Most of all, for convenience purposes, it’s worth knowing how Afterpay might play with financial health and whether it will affect your credit scores over time.
This article considers whether Afterpay helps or hurts your credit score and discusses how one can responsibly manage one’s account to live a healthy financial life.
What Is Afterpay and How It Works?
Afterpay is a BNPL service that allows customers to make purchases without paying the full amount upfront. Instead, the total cost is split into four equal payments, with the first payment due at the time of purchase.
The remaining payments are made every two weeks. As long as the payments are made on time, there are no interest charges or fees. The concept of BNPL services like Afterpay appeals to many because they provide instant access to products while spreading the cost over time.
This flexibility is helpful for individuals who want to make larger purchases but don’t have the funds available all at once. It’s beautiful for younger consumers who may not have access to credit cards or other financing options.
- Sign-Up Process: To use Afterpay, you must create a simple account. Afterpay doesn’t perform a credit check when you sign up, making it accessible to users with various credit histories.
- Payment Schedule: The standard payment schedule is four equal installments, with the first due at the time of purchase. There are no interest charges, but late fees may apply if you miss a payment.
- Merchant Partnerships: Afterpay partners with various retailers, from fashion to electronics, making it a versatile option for many purchases.
In short, Afterpay provides a convenient way for consumers to budget their purchases without accruing interest or going through a lengthy approval process. But how does this affect credit scores?
Does Afterpay Report to Credit Bureaus?
A critical aspect of understanding how Afterpay might impact your credit score is determining whether it reports to credit bureaus. Afterpay currently does not report payment activity—whether positive or negative—to the major credit bureaus such as Equifax, Experian, and TransUnion.
This means that your Afterpay activity, including making on-time payments, will not be reflected in your credit report or contribute to your credit score.
This can be both a positive and negative factor. On the one hand, missing an Afterpay payment won’t immediately damage your credit score, as with a traditional credit card or loan. However, the lack of reporting also means that consistently making on-time payments with Afterpay won’t help you build or improve your credit score.
- Positive Payments Not Reflected: Even if you always make your Afterpay payments on time, it won’t enhance your credit score since Afterpay doesn’t report this information to credit bureaus.
- No Impact from Missed Payments: Similarly, missed payments or late fees incurred through Afterpay won’t directly harm your credit score because the activity is not shared with credit agencies. However, Afterpay may restrict your ability to make future purchases through their platform if you fall behind on payments.
In essence, Afterpay operates outside the traditional credit system, meaning your activity with the platform will not directly impact your credit report.
Can Using Afterpay Improve Your Credit Score?
Since Afterpay doesn’t report payment behavior to credit bureaus, using Afterpay cannot directly improve your credit score. Traditional methods of improving credit, such as making timely payments on credit cards or loans, will still be necessary to boost your credit score.
Since Afterpay operates more like a payment plan than a loan, it doesn’t affect the factors that contribute to your credit score, such as:
- Payment History: This makes up 35% of your FICO score and is based on whether you make timely payments for accounts reported to the credit bureaus. Afterpay does not influence this.
- Credit Utilization: With credit cards, the amount of credit you use relative to your credit limit can affect your credit score. Afterpay purchases do not count as credit, so they do not impact credit utilization.
- Length of Credit History: Credit scores consider how long you’ve had credit accounts open. Since Afterpay is not a traditional credit account, it won’t contribute to your credit history.
While Afterpay cannot directly improve your credit score, consistently using Afterpay responsibly can have indirect benefits. By budgeting your purchases and avoiding debt, you may improve your overall financial health, making it easier to manage other credit accounts that affect your score.
How Afterpay Affects Your Financial Health?
Although Afterpay doesn’t impact your credit score, it can influence your financial health in several ways:
- Positive Impact: Afterpay can help avoid credit card debt by providing a structured, no-interest payment plan. By spreading payments out over time, you can better manage your finances and avoid overspending.
- Negative Impact: Late payments on Afterpay can result in fees, and accumulating too many BNPL purchases may lead to budgeting challenges. While it doesn’t affect your credit score, missing payments may strain your finances and make it harder to keep up with other obligations.
Managing Afterpay responsibly is key to maintaining financial health. It is essential to stay on top of payment due dates and avoid overextending yourself by making multiple BNPL purchases simultaneously.
Read related blogs: Highest FICO Score – Know About What Is The Highest Credit Score
Tips for Managing Afterpay to Protect Your Credit Score
While Afterpay doesn’t directly affect your credit score, managing it wisely can help protect your overall financial health, which may indirectly contribute to better credit management in the long run. Here are some tips:
- Set Reminders: Missing a payment can lead to fees and future restrictions on your Afterpay account. Set up reminders for payment due dates to ensure timely payments.
- Limit Purchases: Avoid overextending yourself with multiple Afterpay purchases. Ensure you have the funds to cover the payments without straining your budget.
- Use for Essential Purchases: Consider using Afterpay for essential purchases rather than non-essential items. This ensures you’re not relying on the service for items outside your budget.
- Monitor Your Accounts: Track your Afterpay activity alongside other financial obligations to ensure that you don’t accidentally miss a payment or overcommit to purchases.
Following these tips, you can use Afterpay responsibly without harming your financial well-being.
Conclusion
Afterpay is convenient to use and interest-free of charge, but in and of itself, it doesn’t either help or harm your credit score. That’s because Afterpay does not report to credit bureaus. Responsible behavior with Afterpay and Beem demonstrates control over money.
Beem helps you compare top financial services, find the best personal loans, and monitor your credit score smartly—all in one place. It can lead to healthier credit habits in that you avoid going overboard and not racking up those payments, which ensures that Afterpay remains a helpful tool for managing purchases without damaging your credit.
People Also Ask
Does Afterpay run a credit check?
No, Afterpay does not run a credit check when you sign up or make a purchase.
Does Afterpay build credit?
No, Afterpay does not report to credit bureaus, so it does not build or improve credit.
Can Afterpay hurt your credit score?
While Afterpay does not hurt your credit score, missed payments could lead to fees or restrictions on your account, indirectly impacting your finances.
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This reply was modified 2 weeks, 1 day ago by
Grace Young.