Afterpay has become an increasingly popular way for shoppers to pay for purchases in installments. But how does Afterpay determine if you qualify to use their service? The short answer is that Afterpay does not perform a full credit check. However, they do have an approval process that aims to assess a customer’s ability to repay their installments on time.
What is Afterpay?
For those unfamiliar, Afterpay is a type of buy now, pay later service. It allows shoppers to split purchases into 4 equal installments, due every 2 weeks. Customers are charged no interest or fees as long as they pay on time. Afterpay makes money by charging retailers a transaction fee.
The service is designed to be quick and easy to use. Shoppers can apply for Afterpay at checkout on participating retailer websites Approval only takes seconds If approved, customers simply enter their debit card or bank account for payments. Afterpay currently has over 100,000 retail partners and serves over 29 million customers worldwide.
Why Afterpay Doesn’t Perform Credit Checks
When a consumer applies for Afterpay, their information is run through Afterpay’s internal approval criteria. This process does not involve running credit reports or credit scores. There are a few reasons why Afterpay takes this approach:
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Speed – Instant approvals are key to Afterpay’s seamless checkout experience. Lengthy credit checks would slow things down.
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Accessibility – Many Afterpay users are young consumers who have little or no credit history. Credit reports may not reflect their financial situation.
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Affordability – Afterpay aims to assess if installments are affordable based on income, not creditworthiness. Their limits are much lower than credit cards.
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Data privacy – Afterpay only collects necessary user data. Full credit reports contain sensitive information.
While credit checks provide lenders with a wealth of data, Afterpay has opted for a faster and more inclusive approval process. But how does it work?
How Afterpay Approves Customers
Instead of credit reports, Afterpay relies on proprietary technology and limited user data to assess new applicants. Here are some key aspects of their approval criteria:
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Identification – Customers must provide their name, date of birth, address, and last 4 digits of their SSN. This allows identity verification.
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Fraud detection – Afterpay screens for indicators of fraudulent activity, such as suspicious account information.
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Account checks – Afterpay may examine bank account balances to determine if a user can afford repayments.
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Purchase limits – New users start with low limits of $150-500. Limits increase over time with on-time payments.
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Repayment capacity – Afterpay uses repayment data to gauge income levels relative to repayment amounts.
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Previous behavior – Afterpay considers users’ repayment history on current and prior accounts. Late fees can lead to declined applications.
While not as comprehensive as credit reports, this combination of data points allows Afterpay to complete quick risk assessments. Low starting limits minimize the company’s exposure.
What Happens If You’re Declined for Afterpay?
Some shoppers are surprised when their Afterpay application is declined. Remember, approval is not guaranteed. Here’s what you can do if you get that disappointing rejection message:
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Check the reason – Afterpay will indicate if you were declined due to unpaid balances, fraud concerns, or other issues. Understanding the reason can inform your next steps.
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Contact support – You may be able to appeal the decision by providing clarifying information to Afterpay’s customer service team.
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Try again later – A change in circumstances could lead to approval down the road. Afterpay suggests waiting 1-2 months before reapplying.
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Use a lower limit – Trying a smaller initial purchase limit could get you approved. Afterpay has certain minimum limits.
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Improve finances – In some cases, declining indicates that Afterpay does not view your current finances as stable enough. Work on budgeting and saving before reapplying.
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Consider alternatives – Other installment services like Klarna and Affirm may have different approval criteria that could work in your favor.
With a short wait time and some financial prudence, many initially declined applicants do go on to get approved for Afterpay.
The Pros and Cons of Afterpay’s Approach
Afterpay’s unique approval process offers some definite benefits but also raises some concerns:
Pros
- Fast, simple application process
- Accessible to those with limited credit history
- Accounts can be opened even if credit is damaged
- Only minimum user data required
Cons
- Income and ability to pay not fully verified
- Potential for customers to take on too much debt
- Higher loss risk for Afterpay if users default
- Harder to identify fraud without comprehensive credit checks
The pros make Afterpay appealing for many customers. However, the cons mean that negative experiences like non-payment and overextension are not uncommon. Afterpay tries to mitigate these risks through incremental limits and account monitoring.
The Bottom Line
Does Afterpay perform credit checks? No. Their approval process relies on proprietary criteria, fraud detection, purchase limits, and repayment capacity analysis. This allows near-instant approvals in many cases. However, it also comes with more financial risk than traditional lenders conduct full credit reviews. Being aware of how Afterpay assessments work can help consumers make informed choices about using buy now, pay later financing responsibly.
What is Afterpay? How does Afterpay work?
*Equifax is not affiliated with nor endorsing Afterpay, Klarna or Affirm in this article.
Afterpay™ is one of the many examples of financial technology companies offering “buy now, pay later” (BNPL) services to online shoppers. As the name suggests, these payment plans allow users to purchase items right away, but then make payments on the purchase over time. In most cases, the payment plan is split into four equal payments. The first payment is paid at purchase and the remaining three payments are withdrawn every two weeks from the debit or credit card linked to your BNPL account.
Afterpay, Klarna®, Affirm® and other BNPL payment options can make it easier to buy online. But its important to know how BNPL services could affect your credit report and credit score.
How do “buy now, pay later” services work?
BNPL services (sometimes called BNPL loans or interest-free financing) divide your online purchases into multiple payments over an extended period, rather than a single purchase. When you use BNPL services, you generally submit the first payment at checkout. Then, you get billed for the remaining payments in equal, interest-free amounts until the purchase is paid in full.
“Buy now, pay later” services may be available on items ranging in price from less than $100 to as much as several thousand dollars. Shoppers are generally given the option to apply for BNPL services at checkout.
Unlike other types of financing options, most BNPL companies dont require a hard inquiry into a persons credit history, and many may not require a credit check at all. Instead, servicers may simply collect a shoppers name, phone number and other identifying information along with a credit or debit card number.
Depending on which company you use, if you miss a payment you incur late fees. Afterpay, for example, does not charge interest on repayments, but there are late fees for users who do not pay on time.
Does Afterpay Do A Credit Check? – BusinessGuide360.com
FAQ
What credit score do you need for Afterpay?
Afterpay requirements
Unlike most personal loans, many BNPL apps use a soft credit hit to determine your eligibility. As a result, it doesn’t have a minimum credit score requirement. That said, if you’ve been a customer for less than six weeks, Afterpay might only let you make one order at a time, and at a lower limit.
Does Afterpay show up on credit checks?
Both Klarna and Afterpay say they run only soft credit checks on customers signing up for their services. These “soft pulls” are not formally recorded by the credit bureaus and should not directly affect your credit score. The checks are run to make sure customers can borrow money responsibly, the services say.
Does bad credit affect Afterpay?
But does AfterPay hurt your credit score? AfterPay late payments are not reported to credit reporting bureaus. In fact, on its website, AfterPay clarifies that it never does credit check or report late payments. “At AfterPay, we never do credit checks or report late payments.
Is it hard to get accepted for Afterpay?
Our approval process takes a number of factors into account, including whether there are sufficient funds in your account (particularly for new customers), and how much you will have to repay on the purchase. We carry out this process on every order you make with Afterpay, not just the first one.