Afterpay makes shopping a breeze, but you might be wondering what impact (if any) your habits will have on your credit score. If buying a house is on the cards and you’re thinking about a home loan, here’s what’s up.
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Afterpay has surged in popularity in the last few years. It gives consumers a quick and easy way to fund their lifestyle without the perceived risk of long-term debt. But could your lifestyle be impacting your ability to borrow money for a home loan in the future? Let’s find out.
TL;DR (Too long, didn’t read)
- Your credit score, income and expenses play a role in your loan eligibility
- Having an Afterpay account does not build credit, but you can’t hide Afterpay debt
- RentPay’s Scorebuilder feature can help build your credit score
What do banks want to see?
Home loan applications are pretty multifaceted. Lenders look at several things before deciding whether or not to lend you money. These include:
- Your credit score: Your credit score is a big factor when applying for a home loan and can make or break a deal. The higher your score is, the more likely you will have your home loan approved.
- Your income: What you earn determines your loan affordability. Most lenders will consider your savings and other assets, such as a car or other properties you own.
- Your expenses: A bank might ask you to list your monthly expenses, including what you spend on essentials like groceries, debt repayments and utilities. They may also request information about lifestyle spending such as streaming services or buy now pay later services like Afterpay.
How does Afterpay affect my credit score?
Afterpay says their service does not affect your credit score. Quoting from their website, they “never do credit checks or report late payments”. That said, this doesn’t mean your Afterpay habit won’t affect the outcome of your home loan application.
While Afterpay might be chill about not reporting late payments, you can’t hide any Afterpay debt from a lender because they will ask for bank statements. Those statements will include any Afterpay repayments.
But will using Afterpay build my credit score?
Buy Now Pay Later companies like Afterpay are not recognised as credit providers because the National Consumer Protection Act 2009 or NCCP Act doesn’t regulate them. Using Afterpay will neither help nor hinder your credit score, providing you to use it responsibly and make repayments on time. Afterpay, on its own, cannot affect your credit score.
Having an Afterpay (BNPL) account does not build credit. Using it (and paying on time) does not help you build a good credit history. The reason is that meeting scheduled payments is not regarded as positive credit behaviour.
This is in contrast to credit cards and other loan repayments, where positive behaviour is reported and will help build your credit score.
But what about missed Afterpay repayments?
We know that lenders can establish what you owe, but did you know they can also check your repayment history when assessing your application? They will also see any late payment fees Afterpay has charged you from your statements. Missed or late Afterpay payments can affect your credibility – and the way you pay back that debt could also impact your ability to borrow in future.
Top tip: Avoid using a credit card to pay back your Afterpay debt. A bank may consider it a risky sign that you can’t manage your funds properly.
So, how can I build my credit score as a renter?
At Rent.com.au, we felt renters weren’t getting the credit owed for their regular rental payments. We think those payments should make a difference to your future – especially as a potential homeowner. So, we built Scorebuilder into RentPay. Each month you have the Scorebuilder feature, we report your account status to one of Australia’s largest credit reporting bodies. If you maintain a good account status, reporting that data to the body over time can positively impact your credit score. Win-win.