PayPal sign
Source: PayPal

Does PayPal Credit Affect Your Credit Score? Not If You Pay on Time

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Oct. 7 2021, Published 11:21 a.m. ET

The BNPL (buy-now-pay-later) space has been gaining immense interest lately. PayPal’s credit fits somewhere into this space. It lets you enjoy a zero percent interest offer again and again. PayPal is a good way to spread the cost of larger purchases. Many people want to know if PayPal credit can affect their credit score.

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PayPal credit is a convenient way to do online shopping from merchants that use PayPal. However, unlike PayPal credit cards, PayPal credit doesn’t offer rewards.

What is PayPal credit?

Launched in 2016, PayPal credit is a reusable credit line that's available on purchases of millions of stores that accept PayPal. According to Credit Glory, you’ll need to have a minimum credit score of about 700 for approval for PayPal credit. All you have to do is to select the PayPal credit option when it comes time to pay. However, the PayPal credit line can only be used online and not in physical stores. You could also use PayPal credit to transfer money online.

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paypal credit users
Source: PayPal Twitter

How does PayPal credit work?

You can apply for PayPal credit by filling out a short application form online. You need to provide a few details like your date of birth, your income after taxes, and the last four digits of your social security number. You also have to agree to the terms and conditions. Once approved, you’ll have a credit limit linked to your PayPal account almost right away.

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If the item is under $99, you will get six months to fully repay the amount without interest charges. However, if you don’t repay within six months, interest will be charged on the purchase from the purchase date at the Purchase APR (annual percentage rate) applicable to your account. If the item price is over $99, the period to repay without interest is reduced to four months. For new accounts, the variable purchase APR is 23.99 percent and varies with the market based on the prime rate. There's also a late payment fee of $40.

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Does PayPal credit affect your credit score?

When you apply for PayPal credit, you need to be approved. For approval, PayPal does a hard check, which knocks off a few points of your credit score. However, if you want to increase your credit limit with PayPal credit, they conduct a soft pull, which doesn’t impact from credit score.

PayPal has been reporting to all the three major credit bureaus (Experian, TransUnion, and Equifax) since 2019. Making timely payments and paying down your debt can help improve your credit score. Any unpaid or past due debt on PayPal credit could hurt your score as any other credit card does. In fact, if the balance remains unpaid long enough, it could get turned over to a collections agency.

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PayPal credit can be very useful if you can pay off your bills on time, which will help you cut down on interest costs. However, like other lines of credit, if you fall back on your payments, the penalties and interest start to accrue very quickly. This adds to the costs and dents your credit score.

There are many alternatives available including Affirm, Klarna, Splitit, and Sezzle. Some of the other key criteria to consider when looking at PayPal credit alternatives should be customer service and security.

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