Credit Building > Does PayPal Credit affect your credit score?

Does PayPal Credit affect your credit score?

Wollit Team2 minute read · Updated 30th June 2024

PayPal Credit is a credit line issued by PayPal that enables you to make online purchases and send money to other users.

It's very similar to a credit card but without the plastic bit – and just like any credit card or loan, it can affect your credit score.

How does PayPal Credit work?

PayPal Credit is “virtual” and doesn’t come with a plastic card. This means you can't use PayPal Credit in a store or at an ATM – it's only for online payments or money transfers.

If you apply and get approved, PayPal Credit will become a funding option in your PayPal wallet and be available for purchases wherever merchants accept PayPal.

PayPal Credit also allows you to make use of two different offers:

0% for a period of four months on all purchases of £99.00 and over,
And instalment offers available at certain stores.

It's somewhat similar to a buy now, pay later service like Clearpay in that sense.

After paying with PayPal Credit, your monthly statement will show all transactions and the minimum payment due.

If you don't pay the entire amount by the due date, you'll have to pay interest at a rate of about 23.9% APR (variable).

Who is eligible for PayPal Credit?

To apply for PayPal Credit, you must:

Be a UK resident and over 18;
Not have any bankruptcies;
Earn more than £7,500 a year;
Have a good credit history.

Will applying for PayPal Credit affect my credit score?

Yes, applying for PayPal Credit will affect your credit score.

This is because Synchrony Bank, the bank that actually lends you the money through PayPal Credit, will run a hard check on your credit report when you apply.

This hard check will usually result in your credit score losing a few points. And while this drop in score lasts only a short while, the hard check will also stay on your credit report for two years.

If you apply for other credit cards or loans, having too many hard checks on your file can further damage your credit score. Plus, this hard check will stay on your credit report regardless of whether you were accepted.

PayPal Credit can also damage your credit score if you miss a payment or are late with your monthly instalments. PayPal Credit reports these things to all the main credit reference agencies: Experian, Equifax, and TransUnion.

Does PayPal Credit help your credit score?

In theory, yes, but we wouldn't recommend using PayPal Credit if you want to boost your credit score.

PayPal Credit is similar to any credit card; it's just virtual – meaning you don't have a plastic card, and you can only use it for online purchases. So, yes, in theory, you could use it responsibly to improve your credit score and show you're a good borrower.

In practice, though, there are better credit-building tools than PayPal Credit.

First, applying for PayPal Credit will temporarily lower your credit score. Most credit-building cards perform a soft check first, while PayPal Credit goes straight for the hard one.

Second, PayPal Credit requires a good credit history to be accepted. That kind of defeats the purpose of using it to improve your credit score.

In fact, we would recommend you refrain from taking a credit building card or loan at all.

Here's why:

Very high interest rates: a credit building card usually has an APR between 30 and 50% per year.
Low credit limits mean that if you want to keep your "credit utilisation" low and show future lenders that you don't "live on credit," you'll have to severely limit your card purchases.
Missing even one single payment can make your credit score even worse.

Instead, try one of these (much safer and less expensive) credit-building alternatives:

Register on the electoral roll.
Use a service like Experian Boost to have your ISA savings, and even your Netflix and Amazon Prime subscriptions, count towards your credit score.
Sign up for a credit-building service like Wollit, which will help you build credit by reporting your subscription to the credit agencies. It also reports your rent payments, making them count towards your credit history as well.