Does PayPal Buy Now Pay Later affect your credit score?

PayPal currently offers two Buy Now Pay Later (BNPL) products to UK customers: Pay in 3 and PayPal Credit. And if you’re considering either of these options, you’ll find yourself wondering whether they affect your credit score.

The answer depends on which PayPal credit service you choose, and how you manage your repayments.

What are the differences between PayPal Pay in 3 and PayPal Credit?

Deciding which BNPL product to choose can be confusing — especially when you’re also trying to work out if they’ll impact your credit health.

Both of PayPal’s products allow you to buy now and pay later with 0% interest. And although they might sound similar, they actually work quite differently.

Here’s a quick lowdown on the key differences.

• Pay in 3 can be used for purchases ranging from £30 – £2,000 at 0% interest. PayPal Credit, in contrast, has a credit limit that is subject to your application. This means that different individuals using PayPal Credit may be offered different credit limits. It’s important to note the 0% interest rate also only applies for four months for purchases over £99 when using PayPal Credit.

• With Pay in 3, you spread the cost of your purchases over two months. But with PayPal Credit, you receive a monthly statement with a minimum amount you must pay — very much like a traditional credit card account.

• Pay in 3 is an unregulated credit agreement. Whereas credit cards (such as the virtual credit card you get with PayPal Credit) are regulated by the Financial Conduct Authority (FCA).

• Signing up to Pay in 3 may involve a soft credit search. Applying for credit cards, such as PayPal credit, on the other hand, usually involves a ‘hard’ credit search.

Essentially, the Paypal Credit service is much more like a ‘typical’ credit card than PayPal’s Pay in 3. The PayPal Credit 0% interest rate only applies on purchases over £99 for four months and, much like other credit cards, there are potential late fees if you don’t pay off the minimum balance every month.

PayPal’s Pay in 3 service shares more in common with other shorter-term BNPL products on the market — with 0% interest and no late fees. However, PayPal’s Pay in 3 is currently unregulated by the FCA, which means that it’s not supervised, and isn’t held to the same expectations as other more traditional financial products.

Finally, although signing up to the Pay in 3 service doesn’t involve a hard credit check, PayPal may share your repayment history with the credit reference agencies (CRAs).

Can applying for PayPal Buy Now Pay Later affect my credit score?

This very much depends on which product you go for. When you apply to PayPal’s Pay in 3 service, they may run a soft credit search, but this won’t affect your credit score. On the other hand, when you apply for a credit card (such as PayPal Credit), a hard credit search will be performed on your report. A hard credit search (sometimes called an ‘application’ search) is visible on your report for 12-24 months, depending on the agency.

Having hard credit checks on your report isn’t inherently a bad thing — but having a record of too many application searches in a short time frame can be seen as a sign of desperation to lenders (it signals you’re either getting accepted or rejected for lots of credit, which is seen as a high-risk indicator). With that in mind, it might be a good idea to do a quick check on how many hard credit searches you already have on your report before applying for short term products like PayPal Credit.

Can using PayPal Buy Now Pay Later improve my credit score?

It could do. Although applying for PayPal’s Pay in 3 only involves a soft credit search, a history of your repayments is shared with the credit reference agencies. If you can maintain a positive repayment history (for example, by always paying on time) this will be reflected on your credit report — which is factored into the calculation of your credit score.

The same goes for PayPal Credit – if you always make your credit card payments on time and use a sensible amount of your available credit, this is seen as a positive indicator when it comes to your credit history.

Could using PayPal Buy Now Pay Later negatively affect my credit score?

Again – potentially, yes. PayPal shares your Pay in 3 and PayPal Credit repayment history with the credit reference agencies, so missed or late payments will be recorded on your credit report. These negative markers can negatively impact your credit score.

PayPal’s Pay in 3 vs PayPal Credit — which is better for my credit score?

If you can manage the repayments consistently, using either could be beneficial for your credit score. This is because the use of both these credit services is reported to the CRAs and, as a result, allows you to build a positive repayment history on your credit report. It shows lenders that you can manage credit responsibly.

But keep in mind – they are very different credit services and suit different people depending on their financial situations.

To recap:

PayPal Credit works like a traditional credit card, whereas PayPal’s Pay in 3 offers delayed repayment over three equal instalments.

PayPal Credit is subject to a hard credit check, which can impact your credit rating. Although having a hard credit search on your credit report isn't necessarily a bad thing, having too many hard checks in a short space of time can act as a red flag to lenders.

PayPal’s Pay in 3 doesn’t involve a hard credit check — so applying for this shouldn’t impact your credit score. However, PayPal’s Pay in 3 service does share details of your repayment history with the credit reference agencies. This means that how well you repay the debt will contribute towards the calculation of your credit score. Consistent repayments will contribute to a higher score, whereas missed payments will have a negative impact.

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