Does Afterpay Affect Your Credit Score?

Written by William Jolly in July 2024.

Our latest guide explores how Afterpay and other major buy now, pay later providers can impact your credit score and how you can manage your credit while using them.

Put your hand up if you’ve ever used buy now, pay later before ??.

According to Roy Morgan Research, more than four million Australians (19.1%) used a buy now, pay later service like Afterpay at some point between January and June 2022, and around 83% of Aussies are aware of them.

But it’s unlikely that many Australians know the impact this relatively new payment method can potentially have on their credit scores.

Our latest guide explores how Afterpay and other major buy now, pay later providers can impact your credit score and how you can manage your credit while using them.

Buy now, pay later (BNPL) explained

Buy Now, Pay Later (BNPL) services allow consumers to purchase items immediately and pay for them in instalments over a set period. Most major BNPL platforms require one upfront payment (often one-fourth) to start before scheduling the remaining payments. They also tend to partner with retailers, enabling consumers to select BNPL as a payment option at checkout.

BNPL is usually interest-free, which makes it appealing to many people, particularly younger demographics. Instead, BNPL tends to charge merchant fees by charging retailers a small portion of each sale and late payment fees for missed payments, which usually range from around $5 - $10.

While they might not charge interest, Finder research found as many as 20% of BNPL users paid late fees in 2024, up from just 5% in 2020, at an average of $94 per year.

What are the biggest buy now, pay later platforms?

Several major BNPL providers operate in Australia, each offering different features, benefits, repayment schedules, fees, and credit check requirements. The most prominent platforms include Afterpay, Zip, Klarna, and Humm. Some Aussie banks also have their own BNPL-style payment options, with popular ones being Commbank’s StepPay and NAB’s NAB Now Pay Later.

According to Finder, these were the most popular BNPL platforms as of late 2023 (some of which have since closed):

Afterpay vs Zip

Afterpay and Zip are generally considered to be the two biggest competitors in the Australian BNPL space, so we’ll be comparing those two.

Afterpay is the most popular BNPL provider here. Founded in 2014 in Australia, it allows consumers to make purchases immediately and pay them off in four equal fortnightly instalments without incurring interest.?

With a starting credit limit of $1,500, many retailers accept it as a payment option. It charges a $10 late fee and an extra $7 for each subsequent missed payment.?

Zip, on the other hand, offers two products: Zip Pay, which covers smaller purchases ($350-$1,000), and Zip Money, which is designed for larger purchases ($1,000-$5,000). Zip actually came before Afterpay, as it was founded in Australia in 2013.

Below is a detailed comparison table between Afterpay, Zip Pay, and Zip Money, highlighting the different fees, credit limits and repayment schedules between the two:

Can buy now, pay later affect your credit score?

The impact of BNPL services on credit scores varies by provider and user repayment behaviour. Generally, BNPL services only directly affect credit scores if a credit check is performed when signing up or if the user fails to make payments on time.

Most BNPL providers perform a ‘soft credit check’ when you sign up, which is basically a check of your credit score that isn’t visible to other lenders and doesn’t show up on your credit report. They do this so they can make sure the product is suitable for you and that they can lend you money responsibly.?

While a soft credit check won’t impact your credit score, missed repayments might. If the BNPL provider reports your missed repayments to credit bureaus, then this can directly damage your credit score.

Does Afterpay affect your credit score?

According to Afterpay’s website, it doesn’t directly impact your credit score at first. However, if you end up requesting a credit limit increase, this might affect your credit score:

“In Australia, it is fast and free to join Afterpay without a credit check," Afterpay says. "Depending on a variety of factors, including payment history and how long you've been with Afterpay, customers may be eligible to apply for a limit increase. In this circumstance, we may conduct a credit check to make sure an increased limit is right for you. We don’t believe that missing a payment with Afterpay should result in a bad credit history. Our main aim is always to help you spend responsibly, and we take a number of steps to help ensure this, including pausing your account when you miss a payment.”

So, if you use Afterpay responsibly and within your means, it shouldn’t directly impact your credit score.

Does Zip affect your credit score?

Both Zip Pay and Zip Money can have a direct impact on your credit score. According to Zip’s website, it both conducts a hard credit check when you apply and reports late payments to credit bureaus:

“As a responsible provider of credit, we consider a number of factors as part of our assessment process. When you apply for a Zip account, we may perform identity and/or credit checks to verify your details and confirm you can make repayments. These checks are performed in accordance with our Privacy Acknowledgement, which you agree to when starting your application. We recommend you review your credit score prior to applying; previous infringements on your credit file may have an adverse effect on your application.”

Both missed repayments and hard credit inquiries can lower your credit score quickly. Data shows each hard credit check can temporarily lower your credit score by around 5-10 points.

Pros and cons of using Afterpay and BNPL

Like most other financial products, there are advantages and disadvantages to using buy now, pay later:

Can using Afterpay help improve your credit score?

Using buy now, pay later responsibly can help with your credit score by helping you manage your finances, but this is a stretch. Some will have no effect, and others can actively hinder your credit health.

Afterpay, for example, does not report to credit bureaus, so on-time payments will not directly improve your credit score. But missed repayments could still be seen as a red flag by other lenders if they can see late fees on your bank statements.

Ultimately, Afterpay and other BNPL platforms are okay to use as long as you use them responsibly. Moderation is key! Try the following to avoid those ‘cons’ of buy now, pay later:

• Don’t use it for everyday expenses: The more you buy, the more you owe, so save it for more significant purchases!
• Stick to one at a time: In 2024, there will be quite a few BNPL platforms available. If you can, use one (and only one).
• Link your account to your debit card: Credit card users (66% - 73%) are much more likely to miss repayments and suffer extra consequences than those who link their account to a debit card.?
• Don’t splurge: Many BNPL companies offer incentives and discounts with certain brands, but this could be a considerable expense if you get sucked in.
• Budget accordingly: If you don’t already have a budget, make one and factor your debts into it! Make reminders of when your repayments are due to be sure you have enough money in your linked account.

Did you know? Jacaranda Finance participates in Comprehensive Credit Reporting (CCR), meaning we report positive repayment data to credit bureaus. This means you could improve your credit score faster by repaying one of our loans on time compared to a non-CCR lender.

How you can improve your credit score

Aside from cutting down on excessive BNPL use, try some of the following tips if you need help boosting your credit score:

• Close other negative credit accounts, like high-interest credit cards
• Minimalise other loan applications, as too many credit enquiries can harm your credit score
• Lower your credit card limits to ensure you are spending within your means
• Check your credit report regularly and maintain updated personal details

We go through all these tips and more in greater detail in our article on improving credit scores below.

How Afterpay can impact your chances of getting a loan

BNPL can affect your loan applications and, as a result, indirectly affect your credit score if your application is rejected.?

Most lenders still view BNPL as credit and will consider it to be a debt that you owe when assessing your bank transactions. Every BNPL purchase in your financial statements can increase your debt-to-income ratio (DTI): when this gets too high, your chances of an unfavourable loan outcome rise with it.

Having more loans and debts to repay reduces the chances you can repay what you owe, and if you’re paying too much in BNPL debts relative to a lender’s guidelines, you won’t be approved.

How to stay on top of your credit with Jacaranda Finance

With Comprehensive Credit Reporting (CCR), you could steadily improve your credit score by repaying one of our Personal Loans on time5. Once you have one of our loans up to $25,000, download our Better Credit mobile app (or log in to your online customer portal) to check your credit score for free! With monthly updates via Equifax, it’s easy to monitor your credit score’s progress.