Do you have a PayPal account, or are you searching for a fast, safe checkout alternative at online stores? You might want to consider using PayPal Credit. PayPal Credit is a popular choice for online shopping that offers a flexible way to pay for products over a period of time. With PayPal Credit, the online reusable credit line has no annual fee and doesn’t require you to open a checking account to get started.
PayPal is one of the most widely used financial products, but will applying for PayPal Credit affect your score? The short answer is yes: applying for PayPal Credit impacts your credit score, especially when you first make the application, and also due to a hard credit check, which may temporarily lower your score and affect your creditworthiness. However, the long-term impact can be positive if you manage your balance responsibly.
If you’re also wondering, “Does this mean PayPal Credit works like other credit lines? What is the minimum credit score for PayPal Credit? Does PayPal do a credit check for Pay in 4? We’ll provide answers to all these questions in this guide. Stick around as we explore how PayPal Credit works, the potential impacts on your credit score, and how you can improve your credit score in general.
How PayPal Credit Works
PayPal Credit is like a credit card but without the physical plastic. You can use the available credit limit linked to your PayPal account to make online transactions.
PayPal Credit offers an accessible, flexible line of credit through Synchrony Bank (a financial institution with which PayPal has a partnership). It allows PayPal users to buy items and pay for them later. Unlike regular credit cards, PayPal Credit is more integrated with online shopping and PayPal’s payment system, making it popular among frequent online shoppers.
The minimum credit score for PayPal Credit before applying is not publicly stated. However, applicants who have a score of 600 or higher generally have a better chance of approval, and sometimes, it may vary. What is considered a bad credit score depends on the credit reference agency doing the rating.
Before we explore how Paypal Credit works, you should ensure you’re eligible to apply.
Requirements to Apply
The following are the basic eligibility requirements:
- You must be at least 18 years old and a resident of the UK.
- You need to have a fair or good credit history.
- You must not have any bankruptcy.
- You must be employed and earn more than £7,500 a year.
How PayPal Credit Works
- Eligibility and Application: After you’ve met the eligibility requirements, you can apply for PayPal Credit. Start by filling out a credit application, which usually involves a credit inquiry.
- Process of Approval: If approved, you’ll receive a line of credit linked to your PayPal account that you can use at checkout when you shop online.
- Flexible Repayment: PayPal Credit offers promotional interest-free periods for qualified purchases (usually 6 months for purchases over $99). Any money left over after the promotional period accrues interest at a variable annual percentage rate (APR).
Once your PayPal Credit account is active, your monthly statement will list all your transactions and the minimum payment due. You can pay via a monthly direct debit withdrawal from your PayPal account or contact your customer service agents.
If you don’t pay the full amount by the statement date, interest will be added at a standard rate of 21.9% p.a. (variable) on purchases under £99.00. PayPal Credit can be convenient and valuable, but it’s also essential to understand how it affects your credit score before applying.
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Will Applying for PayPal Credit Affect My Credit Score?
Yes, your credit score will be impacted when you apply for PayPal Credit. This happens because the lender performs a hard inquiry on your credit report when you apply. The factors surrounding this action include:
1. Credit Inquiry
When you apply for PayPal Credit, Synchrony Bank will perform a PayPal credit score check by reviewing your application and performing a hard credit inquiry to assess your eligibility. Most credit applications follow this practice, and each hard inquiry can slightly lower your credit score by 5 to 10 points, staying on your credit report for up to two years.
- Short-Term Impact: A hard credit inquiry will likely cause a slight drop in your credit score, but this effect will eventually diminish over time.
- Long-Term Impact: Multiple inquiries made within a short time can worsen your credit. This is problematic mainly if you are applying for other types of credit, like a mortgage or car loan, all around the same time.
A credit inquiry will make it more challenging to be accepted for personal loans, credit cards, or mortgages in the future. On the other hand, PayPal offers different financing options, like Pay in 4. This allows users to split qualified purchases into four interest-free payments. The main benefit of Pay in 4 is that it doesn’t usually require a hard credit inquiry; it only involves a soft check, which won’t impact your credit score.
2. Debt-to-Income Ratio and Credit Utilization
When applying for PayPal Credit, it’s essential to consider how it may affect your debt-to-income ratio (DTI) and credit utilization rate.
- Debt-to-Income Ratio: This ratio calculates how much debt you have compared to your income, and it is considered by creditors when approving credit applications. Even though PayPal Credit doesn’t report as a regular credit card, using a large portion of your available credit can still affect applications in the future.
- Credit Utilization Rate: Some PayPal credit activity may appear on your credit report, affecting your credit utilization ratio. A higher utilization rate may lower your credit score.
3. Payment History
Regular and timely payment with your PayPal credit could help demonstrate financial responsibility, which could eventually raise your score. However, if you miss payments, your score can suffer, especially when credit bureaus receive reports of late payments.
Could Applying for PayPal Credit Help Boost My Credit Score?
No, applying for a PayPal credit cannot boost your credit score; instead, it will lower it temporarily. The initial credit score impact of applying for PayPal Credit may be a small decline, but over time, responsible use can lead to a positive credit score impact.
Like any other credit product, maintaining regular payments, increasing your credit mix, using less than 25% of your available credit, and avoiding a balance can help you build your credit score. However, you could damage your credit score if you consistently carry a balance, miss payments, or max out your PayPal credit card each month.
So, to ensure the best possible impact on your credit score, make a plan for managing your credit before you apply.
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How to Improve Your Credit Score
If you want to improve your credit score, PayPal Credit isn’t the ideal financing option. However, if you must take out credit, consider other products like a credit card or personal loan designed to improve your credit.
Here are a few practical strategies to help you:
- Pay Your Bills on Time: One of the most effective strategies to improve your credit score is to pay all your bills on time, including credit cards, loans, and utility bills. You can set up automated reminders to avoid late payments because even one missed payment can harm your credit score.
- Reduce Credit Utilization: Maintaining your credit utilization below 30% on revolving accounts can improve your credit score. If your credit card balances are high, pay them off before applying for new lines of credit.
- Check Your Credit Report: The three major credit bureaus in the UK, TransUnion, Equifax, and Experian, have information about you and how you handle your credit accounts. So, regularly review your credit reports to see if there are any inaccuracies, errors in your profiles, or even fraudulent activity so you can sort them.
The sooner you correct this, the lower the chance it may lead to a negative credit score impact. The three major credit bureaus also provide one free credit report each year. - Consider Tools for Financial Responsibility: Many people believe that tools like budgeting apps and personal finance platforms can make managing finances easier. These apps help track spending, manage debt, and save more efficiently, all of which contribute positively to your credit score.
Conclusion
At the beginning of this article, you may have wondered, “Will applying for PayPal Credit affect my score?” We hope we’ve been able to clarify this and provide you with a clear explanation.
Now that you know it has a potential impact on your credit score, it is totally up to you to take the bold step of improving your score using our strategies if you are already a PayPal credit user or to find other financing options if you’re still considering opening a PayPal credit account. Ultimately, with careful planning, PayPal Credit can still be a useful tool in managing your finances without jeopardizing your credit score.