Finance Expert Warns Afterpay Could Drop Your Credit Score by 100 Points
It’s not as harmless as it claims to be.
Over the past few years, almost everyone has felt the crush of inflation. There are a few lifestyle choices, like tightening your vacation budget or putting off upgrades to your wardrobe, that could fend off financial woes. But let's be real: Temptation abounds, especially with tons of credit cards and buy-now-and-pay-later options. One of those tools, Afterpay, has recently gotten heat for the impact it could have on your credit score.
In a recent video, credit expert Chase (@chasethecreditexpert) said the results could be disastrous. Read on to learn how to avoid the negative impacts of using Afterpay and why you might want to consider different payment options in the future.
Afterpay can drop your credit score by 100 points.
In his video, Chase responds to another video by TikTok user Datura Jonez (@daturajonez), who says that Afterpay has "gotten out of hand." He says her take is accurate and that whenever he sees Afterpay on someone's credit report, it's always because it negatively impacts their score.
"Anytime that you miss one payment, they are definitely going to report that to your credit report, which is going to drop your score by 80 to 100 points," Chase explains.
Credit scores, which can go up to 850, are considered "excellent" at 800 and up, "very good" between 740 and 799, "good" between 670 and 639, and "fair" between 580 and 669, according to Equifax. So, a 100-point drop could bring you down as many as two levels, hurting your ability to find housing, open credit cards, and sometimes even get a job.
Moreover, the credit experts at Experian say repairing your credit score is tough. "The length of time it takes to rebuild your credit history depends on how serious your credit issues were and how your credit history was affected," they write. "It could take just a few months, or it could require several years of commitment."
Afterpay dings stay on your credit report for a while.
Rod Griffin, the senior director of consumer education and advocacy at Experian, told CNBC that recovering a score that Afterpay sinks could take a while.
"If reported, a missed payment can be noted on your credit report for up to seven years and will negatively impact your credit score," he said. "At the same time, if a 'buy now pay later' lender reports account information to credit reporting agencies like Experian, and you are managing the debt responsibly, these services can be a helpful way to build credit."
Afterpay's late fees can also get out of control.
When used properly, Afterpay allows you to pay for items in four installments. You pay the first chunk at the time of purchase and the rest over the course of six weeks, per its website. While a credit card would charge you interest if you didn't pay your bill at the end of the month, Afterpay is interest-fee.
But if you miss a payment, the fees will add up. The service charges a capped late fee of 25 percent for orders below $40; for each order of $40 or above, late fees are capped at $68. "We also pause your account until the balance is paid and you're back on track," they write on their website.
People had mixed feelings about the warning.
In the comments of Chase's video, there were both supporters and detractors of the service.
"All those payments due at the same time is eating me alive literally," wrote one person. "It's a very dangerous slippery slope," said another.
Other people noted that if you pay your bill on time, Afterpay can be a godsend. "My afterpay, affirm, Klarna have NEVER BEEN A PROBLEM. it's people who don't know [how] to manage money is the problem lol," commented one.
Another person noted: "My Afterpay is always paid off! I only buy one thing at a time so I don't get overwhelmed with charges later." To that comment, Chase responded, "Such a perfect way to handle that account. Always stay on top of them. I see them ruin clients' credit every day, and it's so sad. Keep it up."
It's a personal choice to weigh the pros and cons for yourself and your finances.
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Best Life offers the most up-to-date financial information from top experts and the latest news and research, but our content is not meant to be a substitute for professional guidance. When it comes to the money you're spending, saving, or investing, always consult your financial advisor directly.