When you opt for BNPL financing, you’re essentially taking out a very small loan. Loans generally affect your credit, so it’s slightly unusual that Afterpay’s payment plans don’t.
There are two reasons that Afterpay doesn’t affect your credit:
1. Afterpay won’t check your credit with a hard inquiry
Most of the time, when you apply for a new credit account, such as a credit card or loan, the lender will conduct a hard inquiry, which is a type of credit check. Hard inquiries show up on your credit report and temporarily lower your score by around 5 points.
Some BNPL companies conduct hard inquiries when you apply for certain types of financing with them. Afterpay, however, asserts that they only perform soft credit checks (or soft inquiries), which never affect your credit score and which only you can see on your credit report.
It’s common for BNPL companies like Afterpay to only perform soft inquiries. That’s because they want you to use their service frequently, and they know many consumers would be reluctant to do that if every time they applied for financing, it damaged their credit.
2. Afterpay doesn’t report to the credit bureaus
Normally, when you open a credit account, your lender will report your activity on it to one or more of the main credit bureaus, Experian, Equifax, and TransUnion. The bureaus will add the credit account to your credit report, which means it will be factored into the calculation of your credit score.
Some BNPL companies report their loans to the bureaus. Afterpay, however, claims that they never do. This means that using Afterpay can’t possibly affect your credit score, either positively or negatively.
This is both good and bad. The downside is that managing your Afterpay account responsibly won’t build your credit. On the other hand, if you miss a payment, that also won’t hurt your credit score (normally making a late payment causes a damaging derogatory mark to appear on your credit report).