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Will Afterpay Improve Your Credit Score?

Rachel Horan

Rachel Horan

May 11, 20215 minute read
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Buy now, pay later (BNPL) platforms have surged in popularity in recent years. In fact, Afterpay, Australia’s most popular BNPL service, has over three million active users in Australia and New Zealand.

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    As BNPL platforms continue to rise, questions are being raised around this new, unregulated industry. One of them is whether using Afterpay can affect your credit score and ability to be approved for a loan in the future.

    This article will give a rundown of how Afterpay works, whether it improves your credit score, and helpful tips if you’ve got bad credit.

    How does Afterpay work?

    Afterpay allows you to buy a product or service to be repaid in four fortnightly instalments. They don’t charge interest or extra fees — that is, if you pay on time. If you miss a payment, an initial late fee of $10 will apply but does not go higher than 25% of the purchase price.

    After you set up an account, Afterpay will show you how much you can spend based on your individual circumstances and spending habits. While the average order on Afterpay is around $150, the maximum limit you can spend is $2,000. However, this amount is usually reserved for customers who demonstrate a reliable repayment history. Generally, the longer you responsibly use Afterpay, the more you’re allowed to spend.

    Does Afterpay conduct a credit check on their new customers?

    Generally, Afterpay doesn’t conduct credit checks on their new customers. Yet, they have included in their credit reporting policy that they may choose to do so. In the policy, Afterpay states they:

    “May check your identity and/or request a credit report about you from a CRB (credit reporting bureau) to help us assess your application for credit.”

    This means that if Afterpay wants to perform a credit check on you, they reserve the right to. However, the BNPL platform has previously said that credit checks are unnecessary given their younger customer base. In a Senate Committee on fintech regulation, Afterpay said:

    “Credit checks are a lagging customer indicator, are unhelpful for younger adults with no credit bureau history, and often provide an incomplete picture of a customer.”

    Does Afterpay report missed or default payments?

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    Afterpay states in their policy that:

    “If you fail to meet your payment obligations in relation to credit provided by us (e.g. if you miss or are late with one or more payments or commit defaults) or if you commit a serious credit infringement, we may disclose such information to a CRB”.

    This indicates that Afterpay uses the current negative reporting system in Australia. What this means is that only ‘negative’ credit information, such as missed payments or defaults, is reported to the credit bureaus. As a result, ‘positive’ information, including a solid repayment history, isn’t recorded by Afterpay.

    Does Afterpay improve your credit score?

    In a nutshell, using Afterpay is unlikely to affect your credit score. Since Afterpay does not conduct credit reports, there won’t be a hard enquiry left on your credit report. This means that if you use Afterpay, it won’t be lodged in your report and, therefore, can’t impact your credit score.

    However, if you miss or default on your payments, or commit a serious credit infringement, this may negatively impact your credit score. This is because Afterpay can report this to a credit reporting agency. In addition, lenders may take your BNPL spending habits into account when you apply for credit or a loan. If they find irresponsible use of Afterpay, it can affect your ability to access credit.

    To sum up, if you make your payments on time with Afterpay, your credit score shouldn’t be impacted. It’s important to remember that Afterpay is not a credit rebuilding tool and won’t improve your credit score.

    What your credit score means

    Your credit score is calculated based on the information in your credit report. This information will include:

    • The amount you’ve borrowed for previous and/or existing loans and credit;
    • The number of credit applications you have submitted;
    • Whether you have made your repayments on time.

    Your credit score will be a number between zero and 1,000 or 1,200 depending on the credit reporting agency. The score is related to a five-point scale: excellent, very good, good, average, and below average. Your credit score is used by lenders to decide how risky it is to lend to you.

    How else can I improve my credit score?

    A bad credit score can make accessing credit more difficult and expensive. While there is no quick fix for bad credit, there are some steps you can take to improve your credit over time. If you want to improve your credit score, here are some ways to help raise your credit score:

    Check your credit report information

    Once a year, you can access a free copy of your report from one of the credit reporting bureaus: Illion, Equifax, and Experian. It is important to ensure that all information on your report is accurate and up-to-date. Make sure there are no duplicate entries and your payment amounts, name and address details are correct.

    Consolidate your debt

    If you have multiple debts that are becoming difficult to manage, you might want to consider consolidating your debts. A consolidation loan streamlines multiple debts into one, simple repayment plan. This can be helpful for people struggling to manage their debts, as you only need to make one payment rather than several.

    Keep your credit card balance low

    Keeping the balance on your credit card low can demonstrate good spending habits and help improve your credit score. It also limits the amount of active debt you have and prevents you from maxing out your credit card each month.

    Don’t apply for multiple loans at once

    When you apply for a loan or credit, an enquiry is lodged on your credit report. Regardless of whether you’re approved or not, several credit enquiries in a short period of time may indicate to lenders that you are in financial hardship. As a result, this can cause your score to dip.


    Copyright © www.jacarandafinance.com.au Jacaranda Finance Pty Ltd ® ABN 53 162 078 195 Australian Credit Licence 456 404, Pawnbroking License Number 4221738. The information on this web-page is general information and does not take into account your objectives, financial situation or needs. Information provided on this website is general in nature and does not constitute financial advice.


    Rachel Horan
    Rachel Horan

    Written by Rachel Horan

    Rachel Horan is a Content Writer for Jacaranda Finance. Rachel has previously produced content for Brisbane City Council, Black & White Cabs, and Clubs Queensland. She has a Bachelor of Mass Communication with Distinction from the Queensland University of Technology.

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