Does Afterpay make your credit go up?

Afterpay and Your Credit Score: Does Paying in Installments Help or Hurt?

The convenience of “buy now, pay later” (BNPL) services like Afterpay has exploded in recent years. Suddenly, that must-have item feels within reach, broken down into manageable installments. But while Afterpay can be tempting for budget-conscious shoppers, a crucial question often lingers: Does using Afterpay help build my credit?

The short answer, and perhaps a disappointing one for some, is no, Afterpay doesn’t typically contribute to your credit history. Understanding why requires a deeper dive into how credit scores work and how Afterpay operates.

Credit Scores: Building a Positive Payment History

Your credit score is essentially a numerical representation of your creditworthiness. It’s a crucial factor in determining your eligibility for loans, credit cards, mortgages, and even apartment rentals. One of the biggest factors influencing your credit score is your payment history. Lenders want to see a consistent track record of on-time payments.

This is where traditional credit cards shine. Credit card companies regularly report your payment activity to credit bureaus (Experian, Equifax, and TransUnion in the US). When you consistently make on-time payments, you’re building a positive payment history, which helps improve your credit score.

Afterpay’s Non-Reporting Nature: The Key Difference

Afterpay operates differently. Unlike credit cards, Afterpay typically doesn’t report your payment activity to the credit bureaus. This means that even if you consistently make all your Afterpay installments on time, those payments won’t be reflected in your credit report.

Why Doesn’t Afterpay Report to Credit Bureaus?

Several factors contribute to this. Afterpay often positions itself as an alternative to credit, targeting consumers who might not have or want credit cards. Their business model also focuses on smaller transaction amounts and shorter repayment periods compared to traditional credit products. The administrative burden of reporting for potentially millions of small transactions might also be a factor.

The Downside: No Credit-Building Benefits

The consequence of this non-reporting nature is that Afterpay doesn’t help you build credit. You can diligently pay off every installment on time and still see no improvement in your credit score. It’s a convenient way to manage purchases, but it doesn’t function as a credit-building tool.

Potential Negatives: Late Fees and Impact on Budget

While Afterpay itself might not directly contribute to your credit score, it’s crucial to understand that late payments or defaults can potentially have a negative impact on your credit indirectly.

• Late Fees: While Afterpay doesn’t initially report to credit bureaus, accumulating late fees can lead to debt collection. If the debt goes to collections, that collection account will be reported to credit bureaus, negatively impacting your credit score.
• Budget Strain: Relying too heavily on Afterpay can also put a strain on your budget. Overextending yourself with multiple installment plans could lead to missed payments on other bills, such as rent or utilities, which can negatively affect your credit.

In Conclusion: Convenience vs. Credit Building

Afterpay offers a convenient way to spread out the cost of purchases, but it shouldn’t be seen as a substitute for responsible credit management. While it can simplify budgeting, it doesn’t offer the credit-building benefits of traditional credit cards or loans.

If your goal is to improve your credit score, focusing on responsible credit card usage, timely payments on loans, and avoiding excessive debt remains the most effective strategy. Consider Afterpay for its convenience, but don’t rely on it as a method to build your credit. It’s a useful tool, but it’s essential to understand its limitations.