Does Affirm Affect Your Credit Score? Explained (2024)

In a world where online shopping has become the norm, alternative payment methods like Affirm have gained popularity.

Affirm offers consumers the flexibility to split their purchases into smaller, manageable payments over time. But as convenient as it may seem, many shoppers are left wondering, "Does Affirm affect your credit score?"

This article aims to provide a comprehensive answer to this crucial question and shed light on how Affirm can impact your financial reputation.

How Affirm Works

Before diving into the impact on credit scores, it's essential to understand how Affirm works. Affirm is part of a growing category known as "Buy Now, Pay Later" (BNPL) services. When using Affirm for a purchase, customers have the option to select it as a payment method at checkout. Affirm then conducts a soft credit check to determine the customer's eligibility and set the terms of the loan.

Once approved, the total purchase amount is divided into equal installments. Customers are informed of the monthly payments and the interest rate they'll incur, making it easier to budget for their desired items. Unlike traditional credit cards, Affirm provides a transparent payment plan with a fixed interest rate, which can be appealing to budget-conscious shoppers.

Affirm's Reporting to Credit Bureaus

Now, let's address the question of whether Affirm affects your credit score. Affirm does report its lending activity to credit bureaus, which means your use of Affirm can have an impact on your credit history. However, there are some nuances to consider.

Affirm typically reports to at least one of the three major credit bureaus: Experian, Equifax, or TransUnion. This reporting helps individuals build credit if they use Affirm responsibly. Responsible use includes making payments on time and following the agreed-upon terms.

Credit Score Impact

The impact of using Affirm on your credit score can be both positive and negative, depending on your financial behavior. Here's a breakdown of how Affirm can influence your credit score:

Positive Impact:

• Building Credit: For those with limited or no credit history, using Affirm responsibly can be a way to establish a positive credit history. Timely payments on Affirm loans demonstrate your ability to manage credit responsibly.
• Diversifying Credit Mix: Lenders like to see a diverse mix of credit types on your credit report. Adding an Affirm account can diversify your credit profile beyond credit cards and traditional loans.

Negative Impact:

• Late Payments: Just like with any other form of credit, late payments on Affirm can negatively affect your credit score. Late payments are reported to credit bureaus and can result in a lower credit score.
• High Credit Utilization: If you're using a significant portion of your available credit with Affirm, it can lead to a higher credit utilization ratio, which can lower your credit score. It's advisable to keep credit utilization below 30% for optimal credit health.
• Credit Inquiries: When you apply for an Affirm loan, a soft credit inquiry is conducted to determine your eligibility. While this doesn't impact your credit score, if you apply for multiple loans in a short period, it can raise concerns with potential lenders.

Credit Score FAQs

To further clarify the relationship between Affirm and credit scores, let's address some common questions:

1. Can Affirm help build credit?

Yes, Affirm can help build credit when used responsibly. Timely payments and responsible credit management contribute positively to your credit history.

2. Does Affirm perform a hard credit check?

No, Affirm typically conducts a soft credit check when you apply, which doesn't impact your credit score.

3. Can late payments with Affirm be forgiven or removed from my credit report?

Late payments reported by Affirm will remain on your credit report and can impact your score. However, making future payments on time can help mitigate this impact over time.

Tips for Using Affirm Responsibly

To make the most of Affirm without damaging your credit score, consider these tips:

• Budget Wisely: Before committing to an Affirm purchase, ensure you can comfortably meet the monthly payments without straining your budget.
• Set Up Payment Reminders: Missing payments is one of the quickest ways to hurt your credit score. Set up reminders to ensure you pay on time.
• Monitor Your Credit: Keep an eye on your credit report to ensure that Affirm is accurately reporting your payments and that there are no errors.
• Keep Credit Utilization Low: To avoid a negative impact on your credit score, try to keep your credit utilization ratio low by not maxing out your Affirm credit limit.
• Pay Down Balances: If you have existing Affirm loans, aim to pay them off as soon as possible to reduce your outstanding debt and improve your credit score.

Comparison with Traditional Credit

It's essential to note that while Affirm can impact your credit score, it often has a less significant impact compared to traditional credit cards and loans. Traditional credit lines typically involve higher credit limits and more extended repayment periods, making them more influential in shaping your credit history.

Real-Life Examples

To illustrate how Affirm can affect your credit score, consider these real-life scenarios:

Scenario 1 - Positive Impact: John has a limited credit history and decides to use Affirm for a laptop purchase. He makes all payments on time and completes the loan term. Over time, his credit score improves as he establishes a positive credit history.

Scenario 2 - Negative Impact: Sarah uses Affirm for several online shopping sprees, maxing out her available credit and missing a few payments. Her credit score drops due to high credit utilization and late payments.

Conclusion

In conclusion, the impact of Affirm on your credit score depends on how you use it. When used responsibly, Affirm can help build or improve your credit by establishing a positive payment history. However, late payments and high credit utilization can have adverse effects.

If you decide to use Affirm, budget carefully, make payments on time, and monitor your credit report regularly. By doing so, you can enjoy the convenience of Affirm while safeguarding your credit score.