Although it seems similar in some ways to a credit purchase, Afterpay may not help your credit history with the three main credit reporting agencies. Afterpay is a buy now, pay later service and app that allows its users to pay for items over time in four installments. Payments are made over six weeks, and participants are not charged interest if they pay what they owe in four installments.1
To get a better idea of how Afterpay impacts your credit history, this article shows you how Afterpay works and how it can affect your finances.
Afterpay offers a payment plan that allows you to pay the purchase price of an item in four interest-free installments. Under this buy now, pay later (BNPL) option, you typically make the first payment upfront and pay the rest in three interest-free installments over time. The company does not charge any fees when you pay on time, and it prevents you from making more purchases (and, therefore, going further into debt) if you have missed a payment.
Afterpay offers a digital card that can be used when making point-of-sale purchases from participating brick-and-mortar retailers and through online shopping apps. Payment options include domestic debit cards and credit cards as well as checking accounts from domestic banks, but Afterpay doesn’t accept payments from savings accounts or cards from overseas banks.
Using Afterpay won’t help you build credit, because the company doesn’t report any payments you make to the three major credit bureaus. Fortunately, Afterpay won’t hurt your credit, either.
As of August 2022, credit bureaus do not factor payments made to BNPL companies into credit reports, but that could change. Credit bureaus are considering including such information. Equifax was the first to formalize a standard process for reporting BNPL services to credit reports and began classifying BNPL tradelines in 2022. This allows Equifax customers and scoring partners to see BNPL tradeline information and to decide how to use it in their decision-making processes. However, for this information to appear, Afterpay and other BNPL companies would have to agree to supply that information to the credit reporting agencies.
Afterpay may conduct a soft credit check on new customers when they sign up. Although your application may be declined, soft inquiries or soft pulls do not affect credit scores.
Afterpay does not charge interest. However, the company may charge late fees if you don’t make your payments on time or your payment does not process and, after you are notified, you don’t make a manual payment. Afterpay sends you payment reminders so you can be sure you have money in your account to cover the payment.
If you haven’t paid an installment, you may be subject to a late fee once the grace period is over. Typically the grace period lasts 10 days after the due date unless your payment schedule or applicable state law specifies otherwise. The fee won’t be more than $8 per installment and also can’t be higher than the maximum allowed under state law. Additionally, the total late fees you will be responsible for on a single order won’t be more than 25% of the order value at the time of purchase.
When it comes to impacting your credit score, not all BNPL platforms are created equal. While Afterpay does not currently affect your credit because it does not report activity to the credit bureaus, some platforms do alert credit reporting agencies:
Affirm may report to Experian and may, in the future, report to other bureaus as well. However, Affirm points out that when it does report, it reports your entire payment history, including delinquent payments, not just the ones you make on time.
Affirm’s BNPL service works differently from Afterpay. With Affirm, you can choose from different intervals for payments, but you may pay interest, depending on what product you choose. However, Affirm’s website indicates it has no extra fees. Affirm offers different terms for each transaction based on your credit, although it claims its credit checks do not affect your credit score. The options offered depend on the amount of each purchase and can vary by merchant and state.
This service promotes “helping you build a positive payment history” by promoting its credit limit to Equifax, Experian and TransUnion as a new line of credit, but you only get the reporting by joining PerPay+, which costs a few dollars a month.
You can still use the basic PerPay BNPL service without activating Perpay+ just by creating an account, getting a spending limit and choosing your payment schedule. However, all payments are processed from your paycheck on payday, and you have to shop on the Perpay marketplace to use the service.
If you want to take advantage of the credit-building aspect of this service, within your account, you have the option to activate PerPay+ for a fee. Perpay+ will begin reporting payment activity to the credit bureaus after four months of on-time payments which exceed a total of $200. The upgraded service also reports your Perpay Spending Limit as a new credit line to all three major credit reporting bureaus. The cost of this service is added to your monthly payment balance but is free if you don’t have any orders you’re paying for.
The three major credit bureaus have announced plans to accept BNPL data, but they are taking different approaches. Equifax was the first to announce a formalized process for including this data on credit reports after performing a study that showed such data had the potential to improve FICO® scores. Equifax has implemented a new industry code so that BNPL has its own class and isn’t grouped with credit cards, mortgages and other traditional loans.
Meanwhile, TransUnion announced a plan to include the data in credit files without making it available to credit-scoring companies such as FICO®.
You can’t pay for everything through BNPL providers, so it’s essential to practice good credit habits when using a credit card:
Whether you’re new to credit or trying to rebuild your credit, we can help. Self provides tools and resources to build healthy credit habits.
Ana Gonzalez-Ribeiro, MBA, AFC® is an Accredited Financial Counselor® and a Bilingual Personal Finance Writer and Educator dedicated to helping populations that need financial literacy and counseling. Her informative articles have been published in various news outlets and websites including Huffington Post, Fidelity, Fox Business News, MSN and Yahoo Finance. She also founded the personal financial and motivational site www.AcetheJourney.com and translated into Spanish the book, Financial Advice for Blue Collar America by Kathryn B. Hauer, CFP. Ana teaches Spanish or English personal finance courses on behalf of the W!SE (Working In Support of Education) program has taught workshops for nonprofits in NYC.
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