Does AfterPay Affect Your Credit Score in Australia?

Afterpay, the buy-now-pay-later service, has become increasingly popular in Australia, allowing consumers to purchase items immediately and pay for them in instalments. But does Afterpay affect credit score? This question is on the minds of many Australians as they weigh the convenience of Afterpay against potential long-term financial impacts.

At Credit Wipe Australia, we believe that understanding how these services work and how they impact your credit score is essential to managing your finances responsibly.

What Is AfterPay and How Does It Work?

AfterPay is a “buy now, pay later” (BNPL) service that allows customers to spread the cost of their purchases over several weeks, interest-free. It’s widely used in Australia for everything from clothing to electronics, and it’s especially popular with younger consumers who prefer the flexibility of smaller, manageable payments.

AfterPay doesn’t charge interest, but it does charge late fees if payments aren’t made on time. This raises concerns about whether or not Afterpay affects your credit score in the long run.

Does Using AfterPay Affect Your Credit Score?

The short answer is: it depends. The way AfterPay handles credit reporting is different from traditional credit cards and loans, which can confuse many consumers. So, if you’re asking, “How does using AfterPay affect your credit score in Australia?” here are a few things you should know about the service:

No Credit Check When Signing Up

One of the reasons AfterPay is so popular is that it currently doesn’t require a hard credit check when you sign up (as at 2024). This means that using AfterPay won’t directly impact your credit score in the same way applying for a credit card or loan might. Unlike traditional lenders, AfterPay assesses your ability to make repayments without checking your credit history upfront.

Late Payments Can Be Reported

While AfterPay may not initially check your credit score, missing payments can still have consequences. If you fail to pay on time and your account goes into arrears, AfterPay has the right to report your late payments to credit reporting agencies. If this happens, it can negatively affect your credit score. Although AfterPay doesn’t report positive payment activity (i.e., making payments on time won’t boost your score), it does report negative activity. So, if you’re consistently late with payments, it can negatively affect your credit score.

Impact on Your Future Credit Applications

Even if AfterPay doesn’t directly impact your credit score, using the service too frequently could affect your ability to get approved for traditional credit in the future. Lenders look at your overall financial behaviour, and if they see you’re relying on buy now, pay later services, they may view this as a sign of financial instability. Some lenders might also see AfterPay and similar services as a form of debt, even if they’re interest-free. This could influence their decision when you apply for larger loans, such as a mortgage or car loan.

How to Use AfterPay Without Hurting Your Credit

To avoid any negative consequences, it’s important to use AfterPay responsibly. Here are a few tips to ensure AfterPay doesn’t affect credit score in Australia:

• Set Reminders for Payment Due Dates: Since AfterPay doesn’t charge interest, it can be easy to forget that you still need to make regular payments. Setting reminders or enabling auto-pay can help you avoid late payments.
• Keep Track of Your Spending: Because AfterPay allows you to make purchases and pay for them later, it can be tempting to overspend. Be mindful of your budget and avoid using AfterPay for items you can’t afford to pay off on time.
• Limit the Number of BNPL Services: You Use Using multiple BNPL services like AfterPay, ZipPay, or Openpay simultaneously can make it difficult to manage your payments. It’s best to stick to one service to avoid getting overwhelmed with payments and risking late fees.
• Stay on Top of Your Finances: Using AfterPay can be a convenient option, but it shouldn’t replace good financial habits. Make sure you’re keeping an eye on your overall financial situation and only using AfterPay when necessary.

Common Misconceptions About AfterPay and Credit Scores

There are several misconceptions about how AfterPay affects credit scores. Let’s clear up some of these:

• Myth: AfterPay always affects your credit score. This isn’t true. As we mentioned earlier, AfterPay doesn’t impact your credit score unless you miss payments or fail to meet your obligations. If you use AfterPay responsibly, it won’t hurt your credit score.
• Myth: Using AfterPay helps build credit. Another common misconception is that using AfterPay can help improve your credit score. Unfortunately, AfterPay doesn’t report positive payment history to credit agencies, so making timely payments won’t improve your score.
• Myth: AfterPay doesn’t impact major financial decisions. While AfterPay doesn’t directly affect your credit score unless you default on payments, it could still influence a lender’s view of your overall financial health. Having multiple BNPL accounts or using AfterPay regularly might signal to lenders that you rely on short-term financing, which could raise concerns.

Use AfterPay Wisely

So, does AfterPay affect your credit score? It can, but only if you miss payments or struggle to manage your finances. By using AfterPay responsibly and keeping track of your spending, you can enjoy its benefits without damaging your credit score.

If you’re worried about your credit score or need help improving it, Credit Wipe Australia is here for you. Contact us today for a free consultation, and let’s work together to wipe away your credit worries.