Buy now, pay later services like Afterpay have taken Australia by storm, and it’s no wonder – I mean who doesn’t want to get stuff before paying for it.
But can using these payment services affect your chances of getting a loan?
We sit down with our Credit Operations Manager, Yuri Fey to find out.
Yuri has been with us for over five years now and is a shining light in our office. Not only can he put a smile on your face before you’ve had your first sip of coffee, but he can also tell you anything and everything you need to know about loans.
Firstly, can buy now, pay later services like Afterpay affect your credit score?
Maybe – let me give you some details...
Basically, there are a few ways buy now, pay later services can affect your credit score and your credit file in general, depending on which ones you use and how you use them.
Some buy now, pay later facilities do a credit check on you and use that credit information to determine whether they want to give you credit or not (and how much). But when they conduct a credit check it actually goes on your credit file. So, if you apply for credit with these types of buy now, pay later services, you'll find that your credit score is likely to start reducing which might make it harder to get approved for other loans in the future.
If you miss payments, most buy now, pay later services have the ability to inform credit reporting companies on top of charging you late fees. But whether they choose to inform credit reporting bodies is up to them, as they all have their own rules. This means missing payments might not negatively affect your credit score, but it could, depending on the buy now, pay later provider and the severity and frequency of your missed payments.
So, before signing up to any buy now, pay later service it’s definitely worth doing some research on their policies. A good place to start is with this list by comparison website Finder.
How can you check your credit score?
There are a few websites you can jump on that will do a free credit check for you, plus give you information on what good or bad attributes have caused your overall score. This can be super useful particularly if you want to improve your credit score, as you can focus on the most negative attributes and try to eliminate them.
But you may need to check with more than one credit score provider to get a consistent and reliable measure of your credit rating. Also be aware that there are 3 key credit reporting bodies (Experian, Equifax and Illion) so your score might be different with each reporting body based on which credit provider (or utility – like Telstra or Origin Energy) uses which reporting body.
We also suggest checking your score regularly as it may change from month to month as your financial circumstances change. The following websites offer free credit checks:
- Creditsavvy (Experian score)
- Credit Simple (Illion score)
- Finder (Experian score)
- Getcreditscore (Equifax score)
- WisrCredit (Equifax and Experian score)
Are there any other ways buy now pay later services might prevent you from getting a loan?
Besides your credit score, lenders often also look at your living expenses to help make their decision
So when lenders assess your credit worthiness, they often look at three months’ worth of statements to see what costs and expenses you have today, have had in the recent past and are likely to have going forward, to make a judgment call as to whether giving you credit is responsible or not.
Purchases made with buy now, pay later providers like Afterpay and ZipPay show up on your statements. If lenders see multiple buy now, pay later transactions coming out of your account, it can definitely raise some red flags, mainly because you’re required to pay these off within a very short time and this might indicate that you could be short on cash in the short term as you repay these debts.
But that’s not to say all buy now, pay later purchases will concern lenders. For example, if they can see you have used Afterpay to buy a dress and you paid it off, they are likely to conclude that it doesn’t really represent any additional risk to your loan repayments.
It's only a problem if lenders see patterns or behaviours that give them reason to question responsible lending guidelines.
There’s a lot of information out there saying ‘be wary of buy now, pay later services’ and that's something I absolutely agree with. But if you understand your budget and you can make the repayments in time, then use them. They're actually there to make life easier for you and to save you paying interest or having to get a credit card. Just be conscious of how you use them if you are going to be applying for credit in the short to medium term, because they may affect your chances of getting a loan if used frequently and irresponsibly.
If you would like to find out what you could potentially lend based on your income and expenses jump on our Borrowing Power Calculator. Otherwise, give us a call on (08) 8202 7777 or visit us at 400 King William Street, Adelaide – we’d love to help.