Does Paypal Credit Affect Your Credit Score?

Sometimes, bills can pile up on top of you. There seems to be always something that needs paying off, or there’s a birthday or holiday where you have to buy things for other people. It’s tough. 

Perhaps you’ve had a big change in your life, such as buying your first home, where there is so much that you have to pay for, including bills, realtors, and furnishing the place.

Whilst you can afford it, you may feel more comfortable spreading the cost across a few weeks or months, to make it more affordable. That’s where credit comes in handy.

Nowadays, you can actually get credit on your PayPal account, so you can make purchases from online merchants there and then, and worry about actually paying for them later. This makes it a great payment option for expensive items, especially since so many online shops accept PayPal.

This is great if you have a few things needing paying for one month, as you can spread the cost across two, three, or four months, to make budgeting much easier for you.

So, will PayPal Credit affect your credit score? This guide will tell you everything you need to know. 

Does paypal credit affect your credit score?

What is PayPal credit?

PayPal Credit is a relatively new service offered by the company PayPal. It works in a similar way to a normal credit card, however, it is for online purchases, unless you apply for a PayPal Credit Card. You can use PayPal Credit anywhere that accepts PayPal.

Luckily, PayPal is such an established and secure monetary platform that so many retailers offer PayPal as a preferred payment method. Almost any online merchant will accept PayPay and PayPay credit as a way to pay.

How does PayPal Credit work? It is very similar to any other line of credit, like a credit card. It allows you to use PayPal to cover the cost of an item, which you will pay back later.

What is a PayPal Credit Card

Some people can apply for a physical PayPal credit card. This allows you to spend money out and about using a physical card. This is not to be confused with the PayPal debit card that is available for some business users.

Does PayPal Credit have fees?

On PayPal Credit, if the item is under $99, then you can pay it back over 6 months interest-free.

If the item is over $99, then you have to pay it back over 4 months without the balance accruing any interest.

After this time has passed, you will have interest on the balance of your credit used for the purchase, with an APR of at least 19.9%. 

How can I avoid paying interest on PayPal credit?

To avoid any late fees for PayPal Credit, you need to treat it the same as a credit line from any other financial institution. You should finish payment for your items before the end of the interest-free period.

As with any other credit account, if you only make the minimum payments, you will often find that you accrue interest. You should always double-check to make sure that you finish funding a purchase before it starts to gain interest.

Does a PayPal Credit account have an annual fee?

No, there is no annual fee for using PayPal Credit. This is the same as your normal PayPal account. The only annual fee associated with PayPal is a small fee for inactive accounts, which can easily be avoided by logging into your account regularly, or by making purchases.

Why do people use PayPal Credit?

Many people use PayPal because of the Purchase Protection they provide. If an item does not arrive or does not match the description, your purchase is covered by PayPal and protected, and you can apply for a refund through their customer service helplines or using their claim form.

The other great thing about PayPal Credit is that it is so convenient. It is also very fast, and you can start using the credit as soon as you are approved, which typically happens within a few seconds.

So, what are the downsides, does Paypal Credit affect your credit score?

What is a credit report?

Your credit report is a combination of all the information that a credit bureau holds on you about your payments, repayments, loans, debts, and any other financial information. They will also know if you have missed any payments for items, which will reflect badly on your credit report. They will also be able to see if you have had any debts that have gone to a collections agency, or if you have ever declared bankruptcy. Your credit score will show issues even if you have a closed account that you defaulted on in the past, or if you took out a business loan that you failed to repay.

Your credit score determines how much you are likely to be able to borrow. If you have a low credit score, you are unlikely to get offered many credit cards, loans, or mortgage offers. If you do get offered these, you will likely get worse terms and conditions, for example, higher interest rates.

Why do lenders listen to credit bureaus?

Your credit score is a reflection of how likely you are to repay lines of credit that you have taken out. A poor credit rating suggests that a bank may have trouble getting you to repay a loan. This is why your credit score is so important.

Does PayPal credit affect your credit score?

Yes, when you apply for PayPal Credit, it will affect your credit score. This is because PayPal has to do a ‘hard credit check’ to see if you are eligible, and to gauge your credit limit. PayPal may offer some users credit limits of $250, whereas others may receive a limit of $1000. 

Whenever you undergo a hard credit check, also known as a hard inquiry, your credit score could be lowered by a few points. PayPal Credit is partnered with a bank, which is called Synchrony Bank. This bank will be the one reviewing your credit application and will complete a quick audit to see if you are eligible. 

This hard inquiry can appear on your credit report for about 2 years and can lower your score slightly. In addition, since 2019, PayPal reports information about your account to credit bureaus.

What this means is that if you do not pay, miss a payment, or if you have a late payment, it will be recorded and published on your credit report, which will in turn lower your credit score. 

However, if you keep on top of your PayPal Credit, never miss a payment, and use the PayPal Credit system wisely and responsibly, there is no reason why your credit score will decrease.

Does PayPal do a hard credit pull?

Yes, when you apply for PayPal credit, a hard inquiry will be done on your credit report. Your score can be lowered by hard inquiries, but this only makes a difference to your credit score if you undergo lots of hard checks or hard inquiries and apply for multiple loans in a short period of time. You should also know the difference between a hard inquiry and a soft inquiry.

What is the difference between a hard inquiry and a soft credit check?

Hard credit checks are usually used when you want to apply for any kind of credit product, such as a credit card, a loan, a mortgage, or PayPal Credit. These checks stay on your credit report for a number of years, and it affects your credit score.

A soft credit check is a check that is often performed for some purchases. This type of check is not logged. A soft pull is not the kind that affects your credit score.

Does using PayPal ‘Pay in 3’ affect your credit score?

Yes, just like with other types of PayPal credit, the ‘Pay in 3’ credit option can affect your credit score. However, you should find that your credit score is only majorly affected when you open your PayPal credit account, or if you miss any payments that you are due. Missing payments shows credit bureaus that you are a higher risk. This means that credit bureaus will suggest that other lenders do not lend money to you.

What are the risks if I make late payments?

The biggest concern with late payments is that you will continue to accrue interest, and you may even get late fees added on to your PayPal Credit account. Late fees can be enough to push someone towards a debt spiral, so it is important to always stay on top of your PayPal Credit account.

There are also longer-term issues with missing repayments. If you miss payments, defaults on your credit report will continue to show up for a number of years. You might find that this limits your options to open a bank account or apply for another credit product, such as a loan, a credit card, or a mortgage. Some credit card issuers may take applications from people with poor credit scores, but getting a credit line when you have a bad credit score will usually mean that you pay higher interest on any money you borrow or any amounts of money that you borrow.

How can I avoid late fees?

As long as you make your payments on time, you do not have to worry about accruing interest on your balance. However, if you do not make payments on time, then you will incur charges.

Late payment fees can be upwards of $40, but that can be reduced if you make the minimum payment as soon as possible. 

Note that you do not have to make progress towards clearing the balance with installment payments to avoid fees. You only need to make the minimum payments that have been agreed between you and PayPal.

Can PayPal credit improve your credit score?

PayPal Credit affects your credit rating in both positive and negative ways.

As mentioned above, PayPal Credit can decrease your credit score slightly due to the hard check. However, if you make your payments in 4 or 6 months, then it is interest-free and has no negative impact on your credit score.

However, as PayPal now reports to the major credit bureaus, making timely payments and clearing your loan can help improve your credit score, as it shows you are using the system responsibly and in a timely manner.

Making sure you have good payment history on your PayPal account means that you can build credit. That can help you apply for future lines of credit more easily. This is a great way for potentially all PayPal users to raise their credit rating, though you should check that this is right for you before applying for PayPal Credit.

What credit score do you need for PayPal credit?

In order to be approved for PayPal Credit, you will need a minimum credit score of about 700. If your application for PayPal Credit is denied, then it is probably because your score is low or below 700. 

To be successful, you will also need to provide your date of birth, the last four digits of your social security number, and your income after taxes, and you will have to agree to the Terms and Conditions. 

Even after you are approved, how much credit you are awarded depends on your individual credit and your personal circumstances. The credit limit you are given can be anywhere between $250 to $1000, or even up to $20,000.

Does closing PayPal credit accounts affect my credit score?

Closing accounts does not usually change your credit rating. However, credit report companies like to see that users have large amounts of available credit that they are not using. This means that having – but not using – PayPal Credit affects your credit report in positive ways.

On the other hand, usually the amount of credit you have is weighed against your annual income when you are looking for credit such as a PayPal Credit option. This means that if you have too many lines of credit compared to your income, you may find it hard to get additional lines of credit.

Does a regular PayPal account affect your credit rating?

No, a normal PayPal account should not affect your credit rating. This is because the PayPal account either links to your bank account or it uses a pre-paid account – this is your PayPal balance that you can check on the PayPal website.

This means that you can use PayPal to send money to friends domestically or in other countries or buy items online without worry.

Final thoughts

PayPal Credit can be a great tool for spreading the cost of items. However, you should use it carefully, as with any other line of credit. It is possible to get into debt using lines of credit unwisely, so you should always be careful, as this will be reflected on your credit report.

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