How to protect your credit score when you use Afterpay


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The COVID-19 pandemic has made Australians nervous about their finances. Just as conspiracy theories about COVID-19 are doing the rounds on the internet, there are plenty of myths about how the pandemic might hurt your credit score.

Buy now pay later (BNPL) services such as Afterpay and ZipPay have shown no signs of slowing down. Online purchases have boomed as COVID-19 has transformed our shopping habits, including how much we spend, what we buy, and how we buy it.

According to CreditSmart figures, a huge 14.9 million Australians have some sort of credit product - and just over one in 10 are using Buy Now Pay Later services.

afterpay buy now pay later credit score

BNPL products are credit products, just like any other loan, and will take repayments from your bank accounts. As with credit cards, you will be charged a late fee if you miss a payment and it start becoming more expensive to use if they're not being paid off in full at the end of each month.

The golden rule for any form of credit is to only use it for things you really need and can afford to repay. The same rules apply to BNPL services: only spend what you can afford to pay back.

It is important that you have a clear idea of the incomings and outgoings in your account and stay on top of your scheduled payments. Late payment fees can really add up and can further increase your debt.

With six in 10 Australians believing they will change their spending, savings, and credit habits following COVID-19, here are some tips for consumers to take control of their financial and credit health over the coming months:

1. Be conscious of other repayment obligations. Make sure you are not paying your BNPL repayments at the expense of other debt, such as your car loan, mortgage or credit card.

2. Know your limits. Keep track of your BNPL usage and put a limit on it. If you exceed or get close to your limit, minimise further use until you have paid off your existing debt.

3. Consider linking your BNPL account to your debit card instead of your credit card. Paying off BNPL from a credit card is just postponing repayments - using a debit card means you're using your own money and might be avoiding credit card interest.

4. Costs can add up. You are charged fees if you miss a payment for BNPL services. It can add up if you are regularly late for payment.

5. Having good credit is important. Keeping your credit report healthy by paying your bills on time will make you look better to a lender the next time you need to apply for credit. It takes time to build up positive payment habits to show that you're a trustworthy borrower. The best way to build a good credit health is to focus on using credit sparingly and responsibly, only applying for credit you can afford and making payments on time.

6. Lenders share certain information about you. Banks and lenders collect credit information about you, which is compiled into a credit report that is available to permissible lenders when you make a new application for credit.

7. You can check your credit report for free annually. You have a right to a free copy of your credit report each year. Getting to know what's on your credit report is the first step in taking control of it. Plus, it will let you see if there are any errors on it.

8. Make a budget and stick to it. Spending responsibly will make sure your credit is healthy after COVID-19. If you are struggling, speak to your lender and ask for assistance.

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Geri Cremin is a credit reporting expert and spokesperson at consumer education website, The CreditSmart website is owned by the Australian Retail Credit Association, the peak body for organisations involved in the disclosure, exchange and application of credit reporting data in Australia. She has a Bachelor's of Law from QUT and a graduate diploma of legal practice from ANU.