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does applying for paypal credit affect your credit score?
does applying for paypal credit affect your credit score?

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Does Applying for PayPal Credit Affect Your Credit Score?

PayPal Credit may seem like a great alternative if you're looking for credit, but what impact does it have on your credit score? We look at how PayPal Credit accounts work and whether it makes any difference to your credit score.
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How does PayPal Credit work?

PayPal Credit is quite similar to a credit card but without the physical plastic. Your PayPal account is associated with a credit limit that is available to you to make online transactions.

If approved, PayPal Credit will become a funding option in your PayPal wallet and be available for purchases in the majority of merchants that accept PayPal.

By selecting PayPal Credit as your payment option during the checkout process, you can buy in the same way you would with a regular credit card.

Your monthly statement from PayPal Credit will list all of your transactions as well as the minimum payment due. You can make payments by a monthly direct debit, a withdrawal from your PayPal account, or by contacting our customer service representatives.

If you don’t pay the entire amount by the statement date, interest is added at a normal rate of 21.9% p.a. (variable) on purchases under £99.00.

PayPal Credit also allows you to make use of two different offers:

  • 0% for a period of four months on all purchases of £99.00 and over; and

  • instalment offers available at certain merchants.

If you choose to take up any of their offers, they will also be shown on your monthly statement, and in your PayPal account under the Credit section.

Requirements to apply

To apply for PayPal Credit you must:

  • Be a UK resident and over 18;

  • Not have any bankruptcies;

  • Earn more than £7,500 a year;

  • Have a fair or good credit profile.

Will applying for PayPal Credit affect my credit score?

Yes, when you apply for PayPal Credit it will affect your credit profile. This is due to the fact that when you apply, a hard inquiry will be done on your credit report.

Synchrony Bank, a financial institution with which PayPal has a partnership, will review your application before completing an audit. This hard inquiry could result in a few points being deducted from your credit score and will be on your credit report for two years.

PayPal Credit started to report data to major credit bureaus in 2019. This means that missing a payment or being late with monthly instalments could also be reported on your credit profile, which can further reduce your credit rating.

Will I affect my credit score even if I'm approved?

Yes, a hard check will be performed on your profile when you apply, regardless of the outcome. Your credit score may suffer as you apply for additional credit since more "footprints" are left on your report.

This will make it more difficult to be accepted for future personal loan applications, credit cards, or mortgages. Even while a single hard inquiry won't significantly lower your credit score, asking for multiple loans during a short time. 

Can applying for PayPal Credit improve my credit?

No, as applying for PayPal Credit will actually lower your credit score temporarily.

How to improve your credit score

If you want to improve your credit score, PayPal Credit isn't necessarily the best way to do it. If you need to take out credit, consider other products like a credit card or personal loan that is specifically built to improve your credit.

Here are a few other things you can do to improve your credit:

Get on the electoral roll

The voter registry is known as the electoral roll. Being included on the electoral roll entitles you to vote in elections and provides address information to the credit agencies, which determine your credit score. 

Every time you apply for a credit product, it also acts as a step in the identity verification process that helps prevent identity fraud. This is why you should make sure that you are registered on the electoral roll and that your contact information is up to date. 

You can sign up in just a few minutes to the electoral roll at Gov.uk.

Credit builder credit cards

Consider this: how would mortgage lenders or credit card firms know how you handle your debt if you've never had a credit card? Not at all. Because of this, getting a credit card and developing a credit history is one of the best strategies to raise your credit score.

But not just any credit card; there are those that are specially made for those with limited credit histories, making it easy to build credit with a credit card.

You can set up an automatic payment so that everything is automatically set up and you don't need to be concerned with missing payments because the credit limit is lower and the APR is much higher.

Reduce your credit applications

You make a mark on your credit report each time you apply for credit. For this reason, you should strive to limit the number of credit applications you make. Your credit score could be further damaged if your application is rejected.

It's advisable to continue using your existing credit line or credit card if you currently have one open rather than applying for something like PayPal Credit.

Before applying, if at all possible, try to determine your chances of approval. Numerous free credit score programmes, like ClearScore, are available to assist you in determining the chances of your application getting approved.

Review your credit report

The three major credit reference agencies in the UK, TransUnion, Equifax and Experian, have information about you and how you handle your credit accounts. 

This information is used to determine whether or not you qualify for a credit product, so it's important that the information they have is accurate and up to date.

Be sure to regularly check your credit reports to see if there are any inaccuracies in your profiles or even fraudulent activity. The sooner you can correct this, the smaller the chance that it may negatively influence your credit score.

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