Affirm is one of the most well-known BNPL services that let customers pay for their purchases in several installments without interest. Affirm currently allows users to finance a wide range of products and services, including clothing and shoes, furniture, flights, hotels and even surgery.
But one common question consumers have is: Does Affirm affect your credit score? The short answer is no – Affirm alone does not lower your credit score. However, the way consumers use Affirm and other BNPL services may either contribute positively or negatively to credit in the long run. Here's what you need to know:Here's what you need to know:
How Affirm Works
Affirm is designed to help you finance purchases ranging from $50 up to $17,500 for qualifying orders. If you select Affirm as the payment option at the time of purchase, you will get to choose your own repayment plan which ranges from 3 to 48 months. This means that the longer the term, the smaller the monthly payments that you will have to make.
When approved, there is no interest and no late fee charges, provided the customer makes the payments on time. If payments are not made on time you can be charged for the late payment up to a maximum of $25 per payment.
When Affirm is checking to see if you qualify for your purchase, they run a soft credit check that does not impact your credit score. When you agree to take the loan, that counts as a hard inquiry, which results in a slight decrease in your credit score for some time.
Does Affirm Report to Credit Bureaus?
Yes, Affirm does provide customer loan repayment details to Experian and TransUnion. This means that if used responsibly, Affirm credit utilization can lead to an increase in credit score in the future as the user proves to be capable of handling this new credit line.
However, due to the fact that payments are divided into biweekly or monthly amounts, it is possible that a debtor’s total credit utilization will be higher as long as there are outstanding loans. Credit utilization ratio is also taken into account by credit scoring models such as FICO where high balances will reduce the score.
Other Things That Affect Your Credit Score
Using services such as “buy now, pay later” including Affirm repeatedly can also be seen as risky by potential lenders in the future per credit experts. Any time there is an application for a loan, it leads to a hard inquiry, which is not very good for your credit report. The large number of hard inquiries within a short period of time indicates a higher risk and credit appetite.
It is advisable not to open more than one or two accounts in a six to 12-month period because this will not harm your score much. Signing up for BNPL with Affirm or another provider is also deleterious in the long run if a person is unable to meet the due dates.
If you have let your accounts go so long without payment that they get written off or turned over to a collection agency, you can easily see your credit score drop 100 points or more. Other adverse events such as bankruptcy filings or other default actions, account settlements also produce long-term negative records.
How to Use Affirm Without Affecting Your Credit
However, if you apply for Affirm credit responsibly by using the account as a revolving credit account by paying on time, then it is going to bolster your credit history. Consider these tips:
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It is also good to check your credit score so that you are aware of your credit status before using Affirm for the first time. Some of the online service providers such as Credit Karma enable users to access their credit reports and VantageScore credit rating on free of charge.
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Don’t borrow too much through Affirm to avoid getting trapped in a cycle of debt. Avoid taking on a loan amount that you would have a problem servicing by repaying as per the standard procedures. In longer installment credit, it is advisable to pay more than the minimum amount when possible.
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If possible, opt for autopay through Affirm so that you cannot forget to make any of the scheduled payments. A single late payment of 30 days could already have an adverse effect on your credit.
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Avoid applying for multiple BNPL loans across the different providers simultaneously. Regulate the formation of new credit accounts in a specific period of 12 months. If many hard checks are made when opening new installment loan lines, this will bring the score down.
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Do not have large credit card balances when paying off for Affirm loans. It is also important to note that the utilization of your credit greatly affects your credit score. It is advisable to make more frequent payments than once per month so that the card balances do not exceed 30% of the credit limits.
The Bottom Line
If one uses Affirm and other new point-of-sale lenders sparingly for relatively cheap purchases and in a timely manner, their credit histories will be enhanced. However, creating an overly-reliant consumer profile in terms of BNPL services to finance otherwise unaffordable purchases that could not be paid within 90-120 days heavily increases the risk factor towards future lenders.
Make sure, think twice before buying, pay as soon as possible, and although Affirm is not an interest bearing credit card, it is better to use it as a flexible financing option. If still, you are not entirely sure, contact your account provider and ask them to explain how Affirm appears on your actual credit report. It can also ensure you this buy now pay later lender does not harm your scores monthly by self-usage of the free program.
