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Does Afterpay Build Credit, and Should You Use It?

Here’s what you should know before using buy now pay later programs like Afterpay.

August 24, 2022

When making a major purchase, you might not always have sufficient cash — or available credit on your credit card — to buy what you want outright. 

As you’ve been shopping online, you may have seen the option to buy what you want using Afterpay, a buy now pay later (BNPL) program.

While this may sound like a good way to make your purchases more affordable, you’ve undoubtedly got several questions. Does Afterpaybuild credit? Can it hurt your credit score? How do installment payments work, anyway?

In this article, we’ll help you understand the basics of how Afterpay works, how it affects your credit, and what personal finance habits offer a better alternative.

How does Afterpay work?

Afterpay is offered by many online retailers at checkout. This Australian point-of-sale financial product is typically made available on the same page where you would put in your credit card information to complete an online purchase. You can also shop through the Afterpay website or download the Afterpay app and integrate it with your Apple Wallet or Google Wallet to use for in-store purchases.

Afterpay breaks up your purchase into four interest-free installment payments, which are paid over a six-week period. The first payment is made upfront. So, if you purchased a $2,000 flatscreen TV, you’d pay $500 upfront, and then pay an additional $500 every two weeks after that until the full amount has been paid off.

Repayment can be done using a variety of payment methods that you can set up within the app, including debit cards, credit cards and even linking directly to your bank account. Afterpay can be used for any product with a purchase price over $35.

Unlike a traditional loan application, you don’t need to go through a credit check. So, even if you have a bad credit score, you can still set up an Afterpay account. You do need to be 18 or older to use the service.

So, does Afterpay build credit?

Time for the big question on your mind: Does Afterpaybuild credit — or hurt your credit? As it turns out, Afterpay doesn’t have a direct impact on your FICOcredit score. First, Afterpay doesn’t perform a hard credit check when you set up your account, and the account itself isn’t reported to credit bureaus.

As a result, your payment history with Afterpay will never appear on your credit report. If you make late payments, it won’t hurt your credit score. On the other hand, if you make on-time payments, it won’t help your credit score either.

Of course, your Afterpay account can indirectly affect your credit score if you use your credit card for Afterpay payments. Every two weeks, your credit card balance will increase as another installment payment is processed. If you aren’t diligent about paying down your balance, this could increase your total credit utilization, which could negatively affect your credit score.

In addition, your credit score could be negatively affected if you put your Afterpay purchases on your credit card and are unable to pay your bill.

Why you should avoid Afterpay and other BNPL providers

While Afterpay and other BNPL providers like Klarna or Affirm may seem like a great way to make expensive purchases more affordable, there are risks associated with these programs.

First, while missed payments may not be reported to credit bureaus, this doesn’t mean there aren’t any negative consequences. Afterpay charges late fees each time you miss a payment due date. 

For Afterpay purchases of $40 or less, you’ll face a maximum of one $10 late fee per order. For more expensive purchases, late fee charges will reach the lesser option of either 25% of the total value of your order or $68.

Though Afterpay doesn’t charge interest, if you aren’t able to complete all your payments during the six-week payment plan, your purchase could end up costing a lot more than expected thanks to these late fees. Afterpay will also freeze your account during this time, so you won’t be able to use the app for additional purchases.

Afterpay and BNPL programs can also make it easy to overspend. Breaking up your purchase into several installments may seem more manageable, but it can cause you to spend more than your budget actually allows.

For example, if your Afterpay account is linked to your credit card, this could cause you to build too big of a balance to pay off at the end of your next billing statement, increasing the amount of debt you’ll accumulate due to your card’s interest rates. 

In addition, linking to a debit card runs the risk of overdrawing your account if you forget when the next Afterpay payment is due. If your payment method fails, Afterpay will charge an additional fee.

A better way to pay for major expenses

While Afterpay can be a convenient payment option for some, taking steps to build strong personal finance habits is ultimately the better way to pay for expenses. Here’s how you can avoid needing to use services like Afterpay.

Save cash for major purchases

Whenever possible, you should try to make a major purchase upfront with cash. Using the $2,000 TV example from earlier, paying the full amount in cash means you won’t have to worry about a high credit utilization or forgetting to make follow-up payments that could negatively affect your finances later. You can have peace of mind knowing that the entire purchase has already been paid for, and that you don’t owe anything else.

To help yourself save cash, consider setting aside a small amount toward your desired purchase each week or after each paycheck. For example, you could set aside $20 from each paycheck until you have enough to make your purchase in cash. This may require cutting spending from other areas, like streaming services or eating out, until you save enough for your goal.

Set a spending limit

To keep your personal finances in check, you can set a spending limit for things that aren’t truly necessities. For example, if you set a strict $100 per month budget for online shopping, you’re less likely to be tempted to overspend on a pricey gadget that you don’t actually need. This requires diligence and practice, but it will help you keep your finances in good shape.


Prioritize debt payoff

Finally, prioritize payoff of your existing debts. For example, paying down credit card debt will eliminate costly interest charges that can eat into your cash reserves. Pay off your highest-interest debts first so that you can have more expendable cash available when you want to make other purchases.

Reduce debt so you can better afford the things you want

No, Afterpay doesn’t build credit, and there are better ways to go about making purchases. By saving up cash and prioritizing credit card debt payoff, you can have money readily available when you need, instead of relying on BNPL programs. This will also help you be better prepared for any emergency expenses that might come your way.

If you need help paying down your credit card debt, download the Tally† app. By combining your higher-interest credit card debts into a single, lower-interest payment, you can pay off your debt more quickly and efficiently.

To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.