Does PayPal affect your credit score?

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PayPal does not affect your credit outright, though if you dig into their terms of service you may notice that they Using PayPal on its own won’t affect your credit score, but PayPal Credit reports financial information like missed payments or closed accounts to the three major credit bureaus, which can affect your score. 

What is PayPal?

PayPal is a popular online payment tool with over 403 million users. The good news for those who enjoy its ease of use: PayPal does not affect your credit score. This is because your credit does not get pulled when you make a payment using their platform—in fact, PayPal doesn’t share any of your financial information when you make a purchase using their tool.

Much like Venmo and other online purchasing tools, PayPal works by electronically and instantly wiring money from your bank account to the account of the seller you’re purchasing from. This doesn’t require a hard or soft credit check, just as buying groceries or making a rent payment doesn’t require a credit check. 

PayPal’s Pay in 4 method of installment payments, a form of “buy now, pay later” financing, also does not require a credit check or appear on your credit report—even if you’re paying in installments using your credit card. There are only a few circumstances where you’ll see PayPal on your credit report.

Why do I see PayPal on my credit report?

Though PayPal does not outright affect your credit score, there are some mentions of credit in their terms of service, and some users may see PayPal reflected on their credit report. Here’s why.

You opened a Business or Premier account 

Users who open a Business or Premier PayPal account give PayPal written authorization (in accordance with the Fair Credit Reporting Act) to obtain their personal and/or business credit reports from a credit reporting agency. In turn, this requires a credit inquiry for PayPal to obtain those records, which is then reflected on your credit report. 

A single inquiry should not be significant enough to drop your credit score by more than a few points. This inquiry is only performed for those who want to upgrade their PayPal account to a Business or Premier account, so the average user will likely not have to worry about PayPal performing a credit inquiry on them.

You requested a new product or account add-on

When users request new products or add-ons to their account, such as a PayPal debit card or PayPal Credit, PayPal will perform a credit check to ensure you’re a reliable borrower. Whether this is a hard or soft credit check is determined by what you’ve requested—for instance, PayPal will perform a hard credit check on a request to open a PayPal Credit account. (But more on that later.)

Your account is deemed risky

Any time PayPal believes there’s an increased level of risk associated with your Premier or Business PayPal account, they may perform a credit check to verify the account is actually being used by you. Risky behavior may mean an unusually high number of large purchases, purchases from a flagged account or repeated failed login attempts.

PayPal Credit: how it works

Signing up for PayPal Credit is similar to applying for a new credit card. When you submit an application, it generates a full credit check to determine whether you’re a reliable borrower, causing a hard inquiry to show up on your credit report. The application is fairly straightforward, and the approval process only takes a few minutes. 

Once approved, PayPal Credit can be used anywhere that accepts PayPal as a form of payment. For purchases of $99 or more, you get six months of interest-free payments to pay off the balance. If you still have a balance after six months, interest starts to accrue going back to the initial purchase date. PayPal Credit can also be used for purchases less than $99, but the balance must be paid in full by the due date to avoid interest. 

Just like with a credit card, late payments can lead to additional fees. For instance, a late fee is charged each month if the minimum payment isn’t met. However, the late fee is never more than the minimum payment due. You can also earn rewards and a $0 annual fee by maintaining a good credit score. 

How PayPal Credit affects credit score 

PayPal Credit affects your credit score in that it acts like a regular credit card, but is only able to be used with merchants that accept PayPal. This means that if you miss a payment or pay late, your credit will take a hit just like if you missed a credit card payment. 

As always, check your credit report and history to see if opening a new line of credit is a good idea for you.

Additional ways to be safe when using online payments 

Even though PayPal may not affect your credit score, it’s still important to be vigilant when making payments using any form of online payment option. Here are some tips to keep in mind when sending or receiving mobile or online payments:

• Double-check that your money is being sent or received by the right person. Many online merchants may not take responsibility for money sent to the wrong person—meaning you may not see that money again if you make a mistake.

• Sign up for fraud alerts. Though stealing your credit card information from an online merchant isn’t as easy as swiping your wallet, some hackers can steal your credit card information or even your whole account from an online payment platform. Be sure to sign up for fraud alerts and two-step verification on money transfer platforms so you’re alerted if someone tries to hack your account.

• Make sure you’re paying the correct amount. It can be easy to type in an extra “0” when making an online payment, and the last thing you want is to send someone $300 when you meant to only send $30. Always check the price owed to make sure you’re sending the correct amount.

• Don’t send money to people you don’t know. Use your best judgement when purchasing goods or services through PayPal and other online services, but it’s best to be cautious and not make a habit out of sending money to people you don’t know.

• Don’t include personal information in payments. While most online payment platforms (including PayPal) won’t reveal sensitive information, such as your credit card number, to senders, you should try to limit the amount of information you share on these platforms. Try not to share more than your email and phone number on your account, and only give your address to a trustworthy recipient. 

FAQs

Does a PayPal debit card have an effect on your credit score?

No, having a PayPal debit card won’t affect your credit score. Debit cards pull from available funds in your checking account, which means you aren’t borrowing money to fund a purchase. 

Does closing a PayPal account affect your credit?

Closing your PayPal Credit account can negatively affect your credit score because PayPal reports financial information to the three major credit bureaus. Once the line of credit is discontinued, that will affect how much credit you have available to use and perhaps your overall credit age—metrics that are used in calculating your credit score.

Why your PayPal Credit might not show up on your credit report

PayPal Credit only started reporting to the credit bureaus in 2019. Your account could have been missed in the shuffle. You could contact PayPal if you don’t see your account listed on your credit report.

PayPal can be an easy way to send and receive money without using your physical card, and the regular platform does not have any impact on your credit. Remember to be smart and make informed choices with any sort of online purchasing tool, even if it claims to not affect your credit in any way. For more helpful information on credit, reach out to our credit advisors. They may be able to help you gain further credit education.

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Note: The information provided on CreditRepair.com does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only.

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