The introduction of shop now, pay later technology has been revolutionary in how many retailers offer payment for their products and services. It has been made more affordable for consumers, allowing them to pay the product or service little by little, instead of in one big chunk. But you might be wondering does Afterpay affect your credit rating? We look into exactly what it is and how it works to clear things up.
What is Afterpay?
Just like the name suggests, the idea of Afterpay is that you can pay for your purchase ‘after’. Your payment is split into four, with the first one being made before you receive the product. You then pay off the remaining amount every fortnight. Unlike a loan, these payments are interest-free, unless you miss one of your payments. You get approved instantly with Afterpay and your item is shipped to you straight away. It is a very convenient way to shop, especially if you are purchasing a big-ticket item that you don’t have the funds to pay for all at once.
Afterpay is an extremely popular choice and more and more businesses are now offering it as an option for payment for their products. In fact, more than $1.45 billion people passed through its platform in the first three-quarters of the last financial year.
How do I qualify for Afterpay?
The great thing about Afterpay is that it is so easy to qualify for. Unlike loans, which are checked against your credit history, with interest charged on top, with Afterpay things are much easier. All you need is a debit card, and to be able to pay the first instalment on the spot. No credit checks. No look into your debt history.
But is it as good as it seems, or does Afterpay affect your credit rating?
What is your credit rating?
This is a score you a given that indicates how trustworthy you are to lend to. Potential lenders will look at this credit score to determine if you are worth the risk, and interest rates are set accordingly. There are many different factors that can affect your credit rating, including:
- Payment history: how timely you have paid your bills in the past.
- Level of debt: you want to keep your credit utilisation ratio as low as possible, using the least amount of credit.
- Your credit age: the longer you have had an account, the better.
- Number of credit inquiries: each time you inquire about a new loan, it is marked on your history. If you are shopping around for the best rate, do it all in a short space of time to avoid this.
Now we know what credit rating is, does After pay affect your credit rating?
Does Afterpay affect your credit rating?
The question is, does Afterpay affect your credit rating? The short answer – no, it doesn’t. But that is with the assumption that you use it correctly. If you make all your payments on time then there will be no marks left against your credit score. However, if you fail to make the repayments or make them late, then yes, this can affect your credit score.
If you struggle to make the repayments, then these late fees may appear on your credit history account. It is up to Afterpay if they choose to report this as to whether or not you will see them show up on your credit report. This will have an effect on your credit score and your ability to borrow money in the future.
But this isn’t the only way Afterpay can negatively affect your chances at getting a loan. On your bank statement, each payment will come off as a separate purchase. A lender may look at these as ongoing monthly expenses that need to be factored in when taking out a loan.
Should I use Afterpay?
Just like any other loan you take out, do so with caution. If you are confident you can pay back the money owed within the right timeframe, then there is no reason not to use Afterpay. If you can pay the product upfront, then this is worth considering to. This takes any risk out of the scenario, even if you would like those extra weeks to ease the financial blow. It may even make you reconsider whether you really need the purchase, or if the cheap fortnightly payments are winning you over. The easiest solution is of course, not to spend the money in the first place.
If you do end up getting into problems with Afterpay, chat with the team at Clean Credit and get the help you need to sort it out. We can help to fix your credit score and get you back on track. Don’t let your bad credit history hold you back. Give us a call today.