Does Clearpay Affect Your Credit Score?

Clearpay can affect your credit score if you miss payments. If you miss a payment, Clearpay can put your account into default and use a debt collection agency to collect the amount you owe. This leaves a negative mark on your credit report that can severely damage your credit score.

If you use Clearpay responsibly and don’t miss payments, it’s unlikely that it will impact your credit score. But is using Clearpay and other buy now, pay later (BNPL) services a wise choice? Are there other ways BNPL can impact your finances? Here, we’ll dig into these questions so you can make informed financial decisions. Let’s dive in!

Related read: Does Klarna Affect Your Credit Score? 

Does Clearpay Run a Credit Check?

When you apply for credit with Clearpay, they’ll run a soft credit check. A soft credit check gives a summary of your credit report. This report gives Clearpay enough information to decide whether they can extend credit to you.

A soft credit check is what you’ll see when you view your own credit report online. Viewing this report doesn’t impact your credit score.

Related read: Soft vs. Hard Credit Check: What’s the Difference?

Does Clearpay Report Payments to Credit Reference Agencies?

At the time of writing, Clearpay does not report payments to credit reference agencies. However, it seems likely that Clearpay will start doing so in the future. A Clearpay spokesperson has indicated that the company is assessing its approach to credit checks to add value and give customers protection.

Clearpay’s competitors, such as Klarna and Laybuy, have both started sharing payment information with credit reference agencies. Klarna shares with both Experian and TransUnion, whereas Laybuy only shares with Experian.

If a BNPL company reports your payments to credit reference agencies, they’ll appear on your credit report. This could impact your ability to qualify for credit cards and personal loans by increasing your debt-to-income ratio. Additionally, using Clearpay could impact your ability to qualify for a mortgage, as lenders would be able to see your BNPL payments on your bank statements.

What are the Risks of Clearpay?

Clearpay, Klarna, Laybuy, and other buy now, pay later services have exploded in popularity in the last year. These ‘point-of-sale loans’ have become a mainstay for many consumers during the cost-of-living crisis. According to a survey from Barnett Waddingham, 38% of respondents had used BNPL services like Clearpay, and an additional 15% were planning to use it.

One factor contributing to their popularity is that they don’t charge interest. But are these services truly risk-free? The short answer is no. Here’s why:

Clearpay Isn’t Regulated by the FCA and Lacks Consumer Protections

Let’s say you ordered something online with a credit card. If that item is lost, damaged, or stolen before you receive it, you don’t need to worry. According to Section 75 of the Consumer Credit Act, your credit card company is responsible for refunding your money in that case. However, Clearpay isn’t regulated by those same rules, so you take on all the risk when making purchases with the service. 

You Can Still Face Late Fees

If you miss a payment, you’ll face a £6 late fee for purchases under £24. For purchases of £24 or more, you’ll face a late fee of £36 or 25%, whichever is less. But the damage can be much greater than that.

If you miss a payment, Clearpay can put your account in default and pass the debt along to a debt collection agency. If your account is put in default, it can significantly impact your credit report and make it difficult to qualify for credit in the future.

Clearpay and BNPL Services Bloat Your Budget

Breaking a single payment into four smaller pieces might seem more manageable, but it can make your budget overly complicated. The more items you have to keep track of, the more likely you’ll be to miss one and risk damaging your credit score.

What’s Better For Building Credit: Clearpay or a Credit Card?

At the end of the day, a traditional credit card is far better for building your credit than Clearpay. In the best-case scenario, Clearpay has no impact on your credit score. However, using Clearpay could damage your credit score if you’re not careful. On the other hand, credit cards actively build your credit score by contributing to your payment history, demonstrating your ability to manage your credit limit appropriately, and more. 

Yes, credit cards have drawbacks like costly late fees and interest on unpaid invoices, but these can all be avoided if you use your credit card wisely. Ultimately, the benefits of using a credit card outweigh the risks. 

Related read: How to Use a Credit Card Wisely

The Bottom Line

Overall, Clearpay isn’t likely to hurt your credit because it doesn’t run a hard credit check or report your timely payments to credit reference agencies. However, it also won’t help build your credit for that same reason.

We know Clearpay and BNPL services seem like great alternatives to credit cards, but the truth is that they don’t help you build credit. A good credit score could save you thousands of pounds over your lifetime. We know that it’s not easy to build credit right now. But with the right strategy and knowledge, it’s possible. Pave is here to help make it easier.

The Pave app can help you avoid missing payments and damaging your credit score, provide you with personalised credit fixes, and potentially even extend you a line of credit to actively build your credit score through timely payments.

To get started building your credit, download the Pave app from the App Store or Google Play today!