Does PayPal affect your credit score?

PayPal is one of the most widely used financial products in the UK, with nearly a third of the population using it. But does it impact your credit score? The short answer is yes: PayPal’s credit products will impact your credit score. But they are unique compared to the traditional credit products you’d get from a high street bank, so let’s take a deeper dive into how PayPal affects your credit score.

Here, we’ll explore their two main credit products, clarify how each impacts your credit, and highlight the advantages and drawbacks of PayPal’s credit products.

Which PayPal products can affect your credit score?

PayPal has two main credit offerings, and they can both affect your credit score. Let’s take a closer look at them and see how they can impact you.

PayPal Credit

PayPal Credit can impact your credit score like most other credit cards.

First, PayPal will pull a hard credit search to see if you qualify. This will cause your credit score to drop slightly, but if your application is accepted, your credit score will recover within about six months.

Once you’re approved, PayPal Credit will impact your credit score like any other credit card. This means that your credit utilisation ratio, payment history, and more will be reported to credit reference agencies. This doesn’t mean that your score will go down, as it depends on how you manage your credit. You can build your credit as well as damage it by using PayPal Credit.

Because the hard search associated with your application will temporarily damage your credit score, you should make sure you’re eligible for PayPal Credit before applying. The basic eligibility requirements include the following:

• You must be a UK resident aged 18 years or older
• You need a good credit history
• You can’t have declared bankruptcy recently
• You must be employed and have an annual income of more than £7,500

Meeting these minimum eligibility requirements will give you the best chances for being approved for PayPal Credit. However, keep in mind that each person’s credit history is different. Meeting these requirements doesn’t guarantee that you’ll be approved, so take the time to assess your own credit report and consider if there’s anything in it that could prevent you from qualifying.

What else you should know about PayPal Credit

PayPal Credit offers a 0% interest rate* for four months if you spend £99 or more on a single transaction. The 0% interest rate differs from other credit cards in that it’s not an introductory offer, meaning that you won’t lose access to the offer after six months or so.

Note that if you pay your balance below £99 without paying it off in whole, you’ll be charged interest for the remaining balance. Additionally, if you fail to repay your balance within four months, PayPal will charge you interest on the remaining balance, including for the initial four months.

Finally, make sure you make at least the minimum payment. If you don’t do that, PayPal may revoke the 0% offer and begin charging you interest immediately. However, we’d suggest you always make your payments in full, as making just the minimum payment is an easy way to end up in debt.

• You’ll have your own interest rate as well. The representative interest rate for PayPal Credit is 23.9%. However, your interest rate depends on other factors, including your payment history and credit score. Check out our resource on representative interest rates to learn more about why you might not get the 23.9% rate.

We know PayPal Credit’s 0% offer can be confusing - so here are the key points:

• If you spend £99 or more on a single transaction using PayPal credit, you can have access to 0% interest
• You must pay off the balance in full within 4 months to ensure you aren’t charged interest
• If you leave the balance to be paid between £0 and £99, you will also be charged interest on the remaining balance

PayPal Pay in 3

Pay in 3 is PayPal’s buy now, pay later (BNPL) offering. It won’t initially impact your credit score like PayPal Credit because there’s no hard credit check. Instead, like other BNPL providers like Klarna, PayPal Pay in 3 performs rolling soft credit checks to assess whether you can afford the purchases.

However, PayPal Pay in 3 can impact your credit score. PayPal reports your payment history to TransUnion, so you can damage your credit score if you miss your scheduled payments. And if you continue to miss payments, a default could be reported on your credit file. This is a disastrous blow to your credit score and credit report and can make it even harder to qualify for credit products for the next six years.

Which PayPal products don’t affect your credit score?

As you might have guessed, not all PayPal products will affect your credit. The standard purchasing tools and peer-to-peer payments do not impact your credit score.

Of course, payments made with another credit card through the PayPal platform can impact your score just as any other credit card purchase would.

Advantages and drawbacks to using PayPal’s credit products

PayPal’s credit products offer an interesting alternative to your run-of-the-mill credit cards. Let’s take one final look at their advantages and disadvantages.

Advantages

• 0% interest rate: PayPal’s 0%-for-four-months offer is a good one if you carry a balance. However, the best thing you can do for your credit is to pay your balance in full right away. If you do that, you’ll never accrue interest anyway.
• Convenience: Using PayPal Credit can help you keep your finances simple. If you already make payments through PayPal, it might be convenient for you to use their credit offering too.
• No annual fees: It’s nothing to write home about, but no credit card should require annual fees. PayPal checks this box.

Drawbacks and risks

• Hard credit check: It’s unavoidable for most credit products, but if your application is rejected, you’ll have damaged your credit score and have nothing to show for it.
• Unclear purchase protection: If you make a purchase with an existing card through PayPal, you may be waiving your protection under Section 75 of the Consumer Credit Act (CCA). The CCA says that credit card companies and retailers are jointly liable for lost, stolen, broken, or other faulty products (or services). But this only applies when there’s a direct connection between the credit card and the retailer. Using PayPay can break this connection, as your credit card would be liable to PayPal, but not to the retailer. An easy way to make sure you’re protected is to log out of PayPal if you’re using it to process a credit card payment. You’ll be protected if you’re using PayPal Credit, because PayPal is the credit card provider. If you use PayPal’s Pay in 3, you also won’t enjoy protection under Section 75 of the CCA, as it’s an unregulated credit agreement.
• Credit eligibility risk: Keep in mind that even if you make your payments on time, PayPal Pay in 3 could impact your ability to secure larger lines of credit (like a loan or a mortgage). Your financial picture beyond your credit score and credit report will play a bigger role in those lenders’ decisions, but they will account for your BNPL usage.

FAQs about PayPal Credit

Have more questions about PayPal Credit? We’ve got you covered.

Does PayPal Credit do a hard pull?

Yes, PayPal Credit does a hard check on your credit score. PayPal will only extend you a line of credit if they believe you’re capable of managing it responsibly. By doing a hard check of your credit report, PayPal can make an evaluation of your creditworthiness.

Is PayPal Credit Bad for your credit?

PayPal Credit can be either good or bad for your credit — it all depends on how you use it. As with any other credit product, maintaining regular payments, using less than 25% of your available credit, and avoiding a balance can help you build your credit score.

On the other hand, if you carry a balance month-to-month, miss payments, or max out your PayPal Credit card each month, you could end up damaging your credit score.

To ensure you have the best possible impact on your credit score, make a plan for managing your credit before applying.

What is the minimum credit score for PayPal Credit?

PayPal doesn’t publish a minimum credit score for eligibility, however, we can assume that this is due to various credit scoring models. What’s considered a bad credit score in the UK depends on the credit reference agency doing the rating.

For example, a credit score of 605 could be simultaneously considered ‘good’ by TransUnion and ‘poor’ by Experian. Given that PayPal does pull a hard credit report, we know your credit score matters for eligibility. Therefore, check your credit score according to multiple credit reference agencies. If your credit score lands within multiple credit reference agencies’ ranges for ‘good’ credit scores, you’ll have a better chance of being approved.

Build your payment history with Pave

If you want to improve your credit score, it can be tempting to open a new line of credit like a PayPal Credit account. However, this can lead to more debt and a worse credit score. Pave helps you build your credit score without adding debt or pulling a hard credit search.

Pave will help you improve your payment history by tracking your bank account and upcoming bills. Plus, you may qualify for a credit builder account. Your account will be reported to three of the UK’s largest credit reference agencies, actively building your credit score.

To see how 99%* of Pave’s users with good credit habits have improved their scores, download the app today.

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*The 99% number represents Pave Plus customers who have been with Pave for at least 6 months, and have taken all actions listed in the Pave app while not adding negative markers to their credit file, such as late payments or defaults. Pave cannot guarantee an increase in your credit score.

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