How Does PayPal Credit Affect My Credit Score?

Shawn Manaher
Shawn Manaher
Updated on December 8, 2022
does paypal credit affect credit score

If you’re thinking about using PayPal credit, make sure to read this full guide before getting started.

Just like any type of credit card, PayPal reports to the three major credit bureaus and will affect your credit score. Late payments are also reported, which means all the activity you do on PayPal credit will have a positive or negative effect on your credit score.

PayPal used to be a hidden tradeline which means they did not report any activity. As of 2019, PayPal credit will affect your credit score because it reports to all credit bureaus, including if you have late or missed payments.

You will need to apply for PayPal credit just like you would any other credit card. This means you will get a hard inquiry on your report, which will also take your credit score down a few points. You need to make sure you have good credit before applying as well.

What Is Paypal Credit?

PayPal launched its PayPal Credit system in 2016. You can use it very similar to a credit card and can use it to buy any items that accept PayPal as a form of payment. There is no annual fee like some other credit cards, which makes it a cheaper option for many.

Depending on how much money you spend, you will have 6 months to pay it with an APR. If the amount is over $100, you will have 4 months to pay it off without an APR.

Make sure to pay it off during this time or you are hit with a high APR of 19.9%. PayPal Credit will also do a hard check of your credit before they allow you to have the card. This will cause your credit score to drop by a few points for a year. It will also show on your credit report for two years.

How Does PayPal Credit Work?

PayPal Credit is extremely easy to sign up for, which is why so many people use it. Before using it, you first need to see if the item you want to buy can be bought with PayPal. When you get to the purchase page, you should see a button that says you can buy the product with your PayPal balance.

When you click the button, a PayPal Credit option will show up. You will need to complete an application where you will enter personal information about yourself, like your address, name, and social security number.

PayPal will run a credit check on you to make sure your credit score is high enough to use their card. This means it will need to be about 700 or above. Once you have completed an application, you will usually receive a notice of approval on the same day.

Keep in mind that when you submit an application, you are giving permission for them to do a full credit check. This will ding your credit score a few points, but it shouldn’t make too much of a difference as long as you are making on-time monthly payments and keeping your debt-to-income ratios low.

The good news is that once you have been approved after a hard inquiry, you’ll be able to shop anywhere that accepts PayPal with just one click of a button. It makes shopping online much easier and much more secure.

There are some requirements though, other than having a good credit score. PayPal will check that you meet all these conditions before allowing you to use PayPal credit:

  • Must be over 18 years old
  • Must be a US resident (there are other countries where you can be a resident as well, such as the UK)
  • Have a good credit history 
  • Meet the annual income requirement

It works just like a credit card. You will need to pay off your balance within a certain period of time, or you risk getting very high-interest fees. You will also face late payment fees when you are not able to pay the minimum balance in time.

Your minimum balance might vary from time to time since PayPal calculates it based on the purchase you make as well as some other factors and fees. You will be notified of your next minimum payment once the billing cycle ends and the banking statement is issued. This will help you prepare for the next month so you can start ensuring you have the money to make the minimum payment. 

You will also be notified of any purchases you did not make and fraud. This helps you to shop online securely.

Does PayPal Credit Affect My Score?

Yes. Having PayPal Credit will affect your credit score. This is mainly because you are going through the same process as applying for a credit card which means your credit report will show a hard inquiry. This will cause your credit score to drop a few points for a year and the hard check will show on your credit report for two years.

When you see the hard check on your credit report, the name will most likely appear as a check from a bank. This is because PayPal partners with banks to perform audits and review applications. Since 2019, PayPal also reports all the information to credit bureaus which means all three credit bureaus will be notified of the credit application and many missed or late payments.

All missed and late payments will lower your credit score especially if you miss several in one year. Keep in mind that a hard check is done whether you are approved or not. If you see your credit score dropping several points, you are also further at risk of not being approved for other lending options such as loans, mortgages, or auto loans. If you are only applying for PayPal and not other loans and credit cards, you won’t see that much damage to your credit score. However, if you are applying for several loans in a short time period, you will see your credit score dropping with every application.

Can I Use Paypal To Help Me Build Credit?

PayPal will not initially help you build credit because it will make your credit score drop by a few points. However, if you use the card correctly and don’t apply for too many other credit cards, you should see your credit score going up or at least staying the same.

You need to make sure you are only making purchases that you can afford that way at the end of each billing cycle, you can make the minimum monthly payment. You should also make the payments as quickly as possible so that you don’t have to deal with the increased APR.

If you are having a hard time making monthly payments, always reach out to PayPal rather than just missing them. They might be able to help put you into a financial relief program that can lower your payments or APR to make it more manageable for you.

Tips For Building Your Credit Score With Paypal

While having a PayPal card itself won’t necessarily help you build credit, there are certain things you can do once you have the card to make sure you are building credit. This will help to get loans and credit cards in the future much easier.

You might also want to get a specific credit card that is made for credit building. These are designed for people that have no or little credit history. The credit limit is usually low with a high APR, but if you set up a direct debit payment, you can be sure you’re making all the payments on time, and you won’t be charged late fees or penalty APRs.

You should also reduce the number of applications you are making in short time periods. If you apply for a PayPal Credit, wait at least a few months or a year before applying for a loan or another credit card.

Applying for too many credit cards in a short time period can be a red flag to certain lenders. It will also drop your credit score and make it harder to get the loans and cards you really need.

You also need to make sure you are checking your credit report regularly. This will help you prevent fraud. If you notice anything incorrect on your credit report, make sure to report it to all three of the credit bureaus.

If they determine it’s a fraud, it will be fixed, and it will not affect your credit score.

In Closing

PayPal will affect your credit score because it does a hard check of your credit report which will make the score fall a few points. It might also affect your credit score if you do not make on-time payments. 

Make sure you are using the card wisely. Having PayPal Credit allows you to easily make purchases anywhere that PayPal is accepted as a form of payment.

Shawn Manaher

Shawn Manaher

Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author.

He's been featured on Forbes, The Consults Corner on TAE Radio, The Writing Biz, What's Your Story, and more.

He loves to share his personal finance tips and money management wisdom with others to help them find financial freedom.
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