If you’ve used Affirm or other buy now pay later (BNPL) services you may be wondering does paying off Affirm boost your credit score?
The relationship between Affirm and your credit is complex. Experian, Equifax, and TransUnion do not get Affirm’s payment history directly from them. So simply using Affirm does not automatically improve your credit. But Affirm has teamed up with Experian Boost so that you can add on-time Affirm payments to your Experian credit report.
This article will explore how Affirm can impact your credit score and provide tips for using Affirm responsibly to build credit,
How Affirm Reports to Credit Bureaus
Affirm itself does not report payment history to major credit bureaus However, Affirm has teamed up with Experian Boost This free service lets you connect utility, phone, and Affirm accounts to add positive payment history to your Experian credit report.
So if you link your Affirm account to Experian Boost, your on-time Affirm payments can be factored into your Experian credit score. This has the potential to give your score a boost.
However, this only affects your Experian credit score. Affirm payments do not impact your credit ratings with Equifax or TransUnion.
What Types of Affirm Loans Are Reported
Not all Affirm loans qualify for Experian Boost credit reporting. The following Affirm loans are the only ones that will be added to your Experian credit report:
- Originated after April 2020
- Have a purchase amount of $50 or more
So if you’ve used Affirm for years with older loans or small purchase amounts, those payments won’t be reported to Experian. Even qualifying Affirm loans aren’t guaranteed to improve your credit score. The impact depends on your current credit history.
Using Affirm Responsibly to Build Credit
Paying off Affirm loans can positively influence your Experian credit score if you:
- Make all monthly payments on time
- Keep credit utilization low
- Link Affirm account to Experian Boost
However, late payments on Affirm loans are reported to credit bureaus and can damage your credit. Defaulting on an Affirm loan can significantly hurt your credit score.
Another thing to keep in mind is that responsible Affirm use can help your credit, but it’s only one part of your credit report. Maintaining good credit takes time and consistent financial habits.
Tips for Using Affirm to Improve Credit Score
- Only borrow what you can afford to pay back on time
- Pay more than the minimum when possible
- Keep balances low compared to credit limits
- Link account to Experian Boost immediately
Using Affirm alone will not drastically boost your credit overnight. But as part of a comprehensive credit-building strategy, Affirm can help demonstrate responsible behavior over time.
FAQs About Affirm and Credit Score
Does Affirm do a hard credit check?
Yes. When you apply for an Affirm loan, they will do a hard credit inquiry, which could lower your credit score for a short time.
Can I use Affirm to consolidate debt?
No. Affirm is designed for financing new purchases, not existing debt consolidation.
Can I pay off my Affirm loan early?
Yes. You can pay off your entire Affirm loan balance early with no prepayment penalty. This can reduce the interest paid over the life of the loan.
What other ways can I build credit without Affirm?
Options include becoming an authorized user on someone else’s credit card, taking out a credit builder loan, or opening a secured credit card. Using these tools responsibly can also demonstrate positive financial habits.
The Bottom Line
Paying off Affirm loans on time and linking your account to Experian Boost can positively influence your Experian credit score. However, Affirm is just one piece of the credit puzzle. Building and maintaining good credit takes diligent financial management over time, not quick fixes.
Use Affirm as a tool for financing purchases responsibly. But be sure to make payments on time, keep balances low, and incorporate other credit-building activities into your financial plans. With prudent use, Affirm can be part of an overall credit-boosting strategy.
Select explains how some point-of-sale loans can decrease your credit score even when you’re making your payments on time and in full.Updated Wed, Oct 30 2024
When Ryan Stanton moved into his new apartment after graduating from college, he chose to use Affirm, Klarna, and Afterpay to buy some things he needed for the house and pay for them later.
He chose to pay for his workout gear, clothes, pillows, and a watch over time, instead of paying all at once or putting it on a credit card. Payments are due every two weeks or every month. Stanton felt safe using 2% interest BNPL loans to pay for his purchases because he knew he could make his installment payments on time and in full.
“Buy now, pay later” loans — also known as point-of-sale loans — offer consumers the ability to pay off their purchases over a fixed period of time with installment payments typically due bi-weekly or monthly.
If youve shopped on the websites of Target, Walmart, Sephora or ASOS, youve probably noticed the BNPL option whenever you get to the checkout page. Squares 2021 announcement for the acquisition of one popular BNPL provider, Australia-based AfterPay, for nearly $30 billion, points to the growing popularity of BNPL providers. In fact, a 2021 report by CB Insights predicts that the industry will grow 10 to 15 times its current size by 2025.
Its easy to see the appeal of POS loans: While traditional credit cards require that consumers pay off their monthly bill in full and on time each month or be hit with high interest rates and late fees, some BNPL loans give consumers loans with 0% interest and no penalties for late payments.
But are these loans as straightforward as they seem? CNBC Select spoke with a number of financial experts to see how this new method of financing could negatively impact your credit score, regardless of whether youre a smart credit user making your payments on time and in full every month.
How some POS loans could decrease your credit score
Depending on your loan provider, taking out a POS loan can either increase, decrease or have no impact at all on your credit score. Some of the most popular POS loan providers — AfterPay, Affirm and Klarna — report some loans to the credit bureaus while others dont.
“If reported, a missed payment can be noted on your credit report for up to seven years and will negatively impact your credit score,” says Rod Griffin, the senior director consumer education and advocacy at Experian. “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.”
Affirm is one BNPL provider that does report information to Experian on some loans. It doesnt report loans with a 0% APR and four biweekly payments or loans where people were given the option of a three-month payment term with 0% APR.
For other Affirm loans, the entire loan history is reported to Experian. This means that both positive and negative payment history will be reported to only Experian and not other credit bureaus. Your payment history, the amount of credit youve used, the length of time youve had the credit and any late payments will all be reported to Experian.
If you default on your Affirm loan or make late payments, you risk decreasing your credit score. But your credit score could take a hit even if youre paying your POS loan on time.
There are a few reasons why a POS loan could hurt your score. For starters, there are many factors that make up your credit score, and your score can go down even if you pay your bills on time, if there are other areas that are lacking.
Here are the five factors that make up your FICO score:
- Payment history (35% of the total): Have you paid past credit accounts on time?
- Amounts owed (30%): The percentage of your total credit and loans that you are using compared to your total credit limit. This is also called your utilization rate.
- Length of credit history (15%):The total amount of time you’ve had credit.
- Ten percent new credit: how often do you apply for and open new accounts?
- Ten percent of your credit mix is made up of different types of credit products, like credit cards, installment loans, finance company accounts, mortgage loans, and more.
Some of the factors that determine your credit history are the average age of your accounts, the age of your oldest account and how long its been since you opened an account. (This is one of the reasons many people worry that closing a credit card could ding their score.)
“While the record of on-time payments can boost your credit, you could see a blow to your score from using the [BNPL] service,” says Leslie Tayne, founder and managing director at Tayne Law Group. “Every purchase you make with a POS loan is considered a separate account on your credit report that gets closed once you pay off the balance. Since these loans are short-term (generally six weeks), they can bring down the average age of your credit history considerably — especially if youre a regular borrower.”
Since 15% of your FICO credit score is determined by the length of your credit history, repeatedly taking out POS loans can decrease your credit score since it lowers the average age of your accounts, Tayne explains.
Affirm does address how its loans can impact consumers credit scores in its help section, noting that how much credit youve used, how long youve had credit, making late payments and your payment history with Affirm could affect your score.