Don’t have enough money to buy something you want now? ZipPay and Afterpay are payment methods that allow you to “buy now and pay later without interest”, which is similar to a lay-by. They aren’t loans or credit cards, but they can affect your credit rating and your chances of getting a home loan if you don’t meet repayments. So if you’re considering using them, here’s what you need to know beforehand.
What is my credit rating?
Your credit rating, or credit score, is a number based on an analysis of your credit report, which helps a lender determine your creditworthiness. Credit providers like banks use your credit rating to help them decide whether they should lend you money, how much to lend you (your credit limit), and what interest rate to offer you.
Based on the Equifax Score, your credit rating will be a number between zero and 1,200, which is rated on a five-point scale:
- Excellent – 833 to 1,200
- Very good – 726 to 832
- Good – 622 to 725
- Average – 510 to 621
- Below average – 0 to 509
Your credit rating is calculated based on information such as:
- Your personal details (eg age, location).
- The type of credit providers you’ve used (eg bank, utility company).
- The amount of credit you’ve borrowed.
- The number of credit or loan applications you’ve made.
- Your usual repayment amount.
- How often you make repayments and if they’re made by the due date.
- Any loans or credit that are unpaid or overdue.
- Any debt or personal insolvency agreements related to bankruptcy.
Your credit rating can increase or decrease over time depending on the information held in your credit report.
What affects my credit rating?
Here are some of the biggest factors that affect your credit rating:
1. Applying for credit cards or loans several times
If you make several credit or loan applications (aka “enquiries”) to different lenders in a short amount of time, this’ll be recorded in your credit report and not only will some lenders see this negatively and reject your application, it’ll also lower your credit score.
2. Making late payments or missing repayments
If you pay your bills late or don’t pay them at all or you miss repayments on your loans or credit cards, these’ll be listed as overdue debts or defaults on your credit report, which will bring down your credit score.
3. Not fixing mistakes in your credit report
If there are errors or inaccuracies (eg a debt may be listed twice) in your credit report and you don’t fix them, it’ll ruin your credit score and it won’t improve, which will negatively affect your future credit or loan applications.
4. Not checking your credit report and score regularly
Someone may use your name to borrow money or run up serious debts, and if you don’t check your credit report at least once a year, these cases of identity theft and fraud could adversely affect your credit score.
5. Maxing out your credit card or putting too much on it
Your credit score is partly calculated by your debt-to-credit ratio (your credit card balance in relation to your available credit line). If your debt-to-credit ratio is more than 50%, this’ll lower your credit rating.
6. Closing credit cards that you’ve paid off
It makes sense to close a credit card that you’ve paid off completely and no longer need, but doing so will remove evidence of positive credit behaviour on your credit report. A good repayment history will continue to help your credit score and your credit report look reputable to lenders.
How does ZipPay affect my credit rating?
ZipPay is a line of credit that lets you buy goods or services now and pay back the total via interest-free instalments. It offers three credit limits: $350, $500, and $1,000. You can set up monthly, fortnightly, or weekly repayments at whatever amount you choose so long as it’s greater than the monthly minimum. The payments are taken automatically through direct debit. You can make extra payments outside of schedule via card or BPAY, but your scheduled payment will still be processed.
According to ZipPay’s Terms of Use, when you apply, they’ll perform identity and/or credit checks to verify who you are and your ability to manage payments. When verifying your identity, ZipPay will look at your PayPal, social media, or bank account. And they’ll look at your credit report to assess your ability to meet repayments.
Signing up for ZipPay is free but if you do decide to sign up, keep in mind that it can affect your home loan application as this type of spending could flag you as a risk for lenders. And if you default on repayments or don’t pay your bills on time, it’ll be reported to the relevant credit reporting body, which will affect your credit rating and further impact your home loan application.
How does Afterpay affect my credit rating?
Afterpay is a service that allows you to buy and receive something instantly, then you can pay back the total in fortnightly instalments without interest. If you sign up using your debit card, Afterpay offers a credit limit of $500 for debit card purchases.
According to Afterpay’s Terms of Service, when you apply, they’ll make enquiries that they consider necessary to confirm your identity and assess your capability to make payments in accordance with the payment schedule relating to Afterpay orders. For example, they could order a credit report, perform other repayment capability checks, and verify the information you provide against third party databases. If you open an account with a credit card, it’ll be assessed based on your limit and credit history.
Signing up for Afterpay is also free and if you do choose to sign up, it won’t affect your credit score initially. However, if you have any negative activity on your account, such as late payments, missed payments, defaults or chargebacks, Afterpay may report them to a credit reporting agency, which will affect both your credit rating and your ability to secure a mortgage. Moreover, if you fail to pay an instalment, you’ll be charged a late fee of around $10.
As you can see, you should only use ZipPay or Afterpay if you can afford the repayments and considered the effect it may have on your credit rating. This is very important if you’re thinking of applying for a home loan.
If you need a money boost now and want to reduce your chances of getting a negative credit score so you can secure a home loan, check out our personal loans. You can apply online in just a few minutes.
