Updated: June 13, 2024 Author: Paul Gillooly
Quick answer PayPal Credit is a credit card account that requires a hard check to be carried out. Applying for it will affect your credit score. PayPal Pay in 3 is a form of buy now pay later agreement that only requires a soft check as part of the application process. This will not directly affect your credit score but failing to keep up with repayments and defaulting will.
What are PayPal Credit and PayPal Pay in 3?
You can think of PayPal Credit as an online credit card linked to your PayPal account. As with any credit card, it allows you to borrow money so you can defer payment of goods and services. Interest will be charged on the amount you borrow and you will need to manage your repayments to reduce the amount of interest you incur over time.
PayPal Pay in 3 is different in that it is a type of buy now pay later credit agreement. For purchases that are between £30 to £2,000, you can split the repayment into 3 monthly instalments. It is an interest-free loan that you can use to spread the cost of various purchases made online.
Why does applying for PayPal Credit affect your credit score?
Your credit profile undergoes a hard check when you apply for PayPal Credit — whereas PayPal Pay in 3 only requires a soft check. Multiple applications made in a short period of time will result in a larger drop in your credit score, which can then make it harder for you to borrow and access credit from other sources.
Will PayPal Pay in 3 ever affect your credit score?
Yes, just because your credit score will not be impacted by the application process does not mean that PayPal Pay in 3 has no impact. PayPal openly states that they share repayment history data with Transunion, which can then directly reduce your credit score if you have missed deadlines or defaulted on payments.
Creating a realistic budget and setting reminders will ensure you meet your repayment schedule. Changes to the way buy now pay later agreements are being factored into credit profiles in the UK will help you build a stronger credit history by meeting your repayments.
What happens if I have unpaid debt on my PayPal Credit account?
Unpaid debt will negatively affect your credit score and can be passed onto a debt collection agency, and eventually to the courts who will make a judgement. If this occurs, the outcome will remain noted on your credit profile for the next six years.
Where possible, taking action early will limit the impact of unpaid debt on your credit score. Contacting PayPal, discussing the potential for a time to pay arrangement and assessing the rest of your budget will all help. This will allow you to take proactive, well-informed steps that can also make it easier for you to borrow again in the future.
