Afterpay and your credit score!

Afterpay and your credit score!

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Afterpay is the latest shopping trend sweeping Australia. Consumers love it, as do retailers. While it can be convenient, there are a few things about using Afterpay you should be aware of. Here, we look at the most common questions users ask. 


What is Afterpay exactly?

Afterpay is a digital service that lets you buy something now – at no initial cost – and pay it off in four equal instalments. You can use Afterpay online or in-store and get your product straight away, unlike layby. The service has become so popular in Australia that as of February 2018, Afterpay had been used by over 1.5 million customers to buy approximately a billion dollars worth of product from 12,000 merchants. Jetstar even recently announced plans to start using the service for domestic flights.


How does Afterpay work?

To use Afterpay you need a debit card or credit card linked to your account. You then pay off your purchases in fortnightly installments that are automatically deducted from your linked card in four equal payments. There are no interest or fees unless you miss payments.


That sounds great! What’s the catch?

If you do miss a payment, you’ll be charged a $10 fee for each missed installment. If you fail to make the payment within another week you’ll be charged an additional $7 fee. So, failure to make your payments on a $100 purchase could potentially cost you an extra $68. Furthermore, if you link you credit card to Afterpay, rather than your debit card, you run the risk of paying credit card interest on your purchases if you let them stack up.


What happens if I don’t make my payments?

Aside from the fees you’ll be charged, Afterpay has the right to sell its unpaid debt to third party collection agencies and the company spent $2.3 million trying to recover unpaid debts in the first half of the 2018 financial year alone. If your Afterpay debt goes to a collection agency it will become a black mark on your credit report.


Does Afterpay look at your credit score before approving you?

Unlike most other forms of credit, Afterpay doesn’t perform a credit check when you sign up for the service. However, it reserves the right to perform credit checks and also report negative activity – such as having to refer your unpaid debt to a collection agency – to credit rating bureaus.


Does using Afterpay affect my credit score?

So long as you use Afterpay responsibly and pay what you owe on time then it won’t affect your credit history. On the other hand, because there’s no credit check, it’s also not helping you to build good credit history either, no matter how prompt you are with your payments. Effectively, it’s credit rating neutral if used properly.

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So, should I use Afterpay or not?

Critics of Afterpay say that it normalises debt and encourages users to spend beyond their means. If you know you are an impulse shopper prone to overspending , then it may not be a good choice for you. The smartest way to shop is always budgeting and spending the money you know you have, not what you hope to have next month. On the other hand, used responsibly, Afterpay can be convenient.

Tips for using Afterpay sensibly:

Set a budget of what you can afford to pay off each fortnight and stick to it.
Use a debit card not a credit card to avoid interest charges.
Set payment reminders or automate payments so that you never get charged late fees.


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