Does Afterpay affect your credit score?

When thinking about applying for a mortgage, your credit score and borrowing capacity matters. Your credit score is a tool used by most lenders in determining how reliable you are as a borrower. Your borrowing capacity, on the other hand, is how much you can afford to borrow.

So, does using Afterpay and other buy now, pay later (BNPL) weigh on your credit score?

Does Afterpay hurt your credit score?

The main question on your mind might be whether or not Afterpay is hurting your credit score and, therefore, your chances of securing mortgage approval. The short answer is that no, Afterpay won’t affect your credit score, but the long answer is a little more complicated than that.

In short, using BNPL services like Afterpay generally won’t affect your credit score as a) Afterpay doesn’t usually do credit checks on their applicants (so there won’t be an inquiry on your account), and b) Afterpay generally doesn’t report late repayments/defaults to any credit reporting bureaus. BNPL activity isn’t technically recorded on your credit report, meaning it shouldn’t affect your credit score.

For the long answer, while using Afterpay shouldn’t directly affect your credit score, it could indirectly. For example, if you racked up a hefty tab on a few BNPL services, you might decide to take out a consolidation loan to pay it all off. Unlike BNPL providers, most personal lenders would report any late repayments to a credit reporting bureau. Meaning, if you were late or missed a repayment on your consolidation loan, it could be recorded on your credit report and bring down your credit score.

But generally speaking, if you use Afterpay and/or other any other BNPL services responsibly - just as you would any form of credit - it shouldn’t hurt your credit score.

Can you get a home loan with an Afterpay account?

Obtaining home loan approval will be completely dependent on you and your personal/financial situation. In itself, having an Afterpay account shouldn’t stop you from getting home loan approval and buying a house. But it should be noted that having an Afterpay account can affect your borrowing power - your capacity to take out a home loan - which can therefore impact whether you get approved for a home loan.

While using Afterpay won’t show up on your credit report, it does show up in your bank statements - which lenders will look at when completing their affordability assessment on your loan application. So, just because it doesn’t affect your credit score, that doesn’t mean it can’t affect your ability to secure a loan.

Should I close my Afterpay account if I’m looking to apply for a home loan?

Responsibly using Afterpay or any other BNPL service shouldn’t stop you from securing home loan approval. So, if you’re thinking about applying for a home loan, this doesn’t mean Afterpay has to go. If you can responsibly manage your Afterpay tab without racking up an unmanageable amount of debt, you could still secure home loan approval. This will depend on a few factors - such as your income, expenses, and how much you’re looking to borrow - but it will ultimately come down to your individual circumstances.

Before you apply for a home loan, it can be helpful to have a good idea of your financial situation. For example, you might wish to:

• Check your credit score: Depending on your credit score, your choice of lender and how much interest you’ll be changed on a home loan can vary. It might be helpful to check your credit score; if your score isn’t the best, you might like to take steps to improve it before applying for a mortgage.

• Use Afterpay responsibly: As mentioned, BNPL services can be harmless when managed responsibly. Ensure you’re making your repayments on time and you shouldn’t encounter any problems.

• Reduce your debt: Before you apply for a mortgage, it might be helpful to try pay off any outstanding debt you may have. This should improve your borrowing power, which could increase your chances of home loan approval.

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Other helpful resources:

10 ways to increase your borrowing capacity
Factors that affect your borrowing power
Understanding your credit score and its effect on your borrowing power