The good news is that PayPal does not affect your credit score through its basic functionality. PayPal is a popular tool that helps you pay securely online, and with over 416 million active users as of Q3 2021, it continues to be used more and more.
If you look closer into their terms of service, you will notice that there is some mention of credit scores and reports, which means it’s important to be knowledgeable about what PayPal does with your credit information and how the payment tool could affect you.
Using PayPal to facilitate online payments won’t cause any impact to your credit score, which is great since this is the primary reason that many users have their account. Your credit doesn’t get run when you make a payment with PayPal, mainly because you’re using your own payment methods or PayPal balance to complete the payment.
PayPal is a third party processor that allows you to keep your data private, completing the payment of your choice without disclosing your financial information directly to the seller.
Like other popular tools such as Venmo and the Cash app, PayPal electronically completes the transaction either through a wire from your bank account, the funds you have available in your PayPal balance, or from a selected debit or credit card you have on file already.
None of these payment options require either a hard or soft credit check, so it’s the same as if you were to go to the merchant and pay directly to them.
PayPal now offers a Pay in 4 option, allowing you to split your purchase into four even payments. It may seem that this would affect your credit, but they provide this service without running your credit at all. It will not appear on your credit check.
That said, there are a few situations in which PayPal could appear on your credit report. Let’s explore them below.
Why Do I See PayPal on My Credit Report?
Although you can use PayPal for the majority of transactions without any effect on your credit score, you may find that credit is mentioned throughout their terms of service. Perhaps you’ve even seen them on your credit report.
These are the three occasions in which that will be the case.
You Opened a Business or Premier PayPal Account
The standard personal account won’t have any bearing on your credit. If you opened a Business or Premier PayPal account, you therefore give PayPal written authorization (based on the Fair Credit Reporting Act) to work with a credit reporting agency and obtain your personal and/or business credit reports.
This will appear on your credit report as an inquiry, and this alone shouldn’t be a significant factor in a large drop in your credit score. Typically you will see a decline of only a few points.
PayPal will only run this inquiry if you want to upgrade your PayPal account to a Business or Premier account, which means the majority of users won’t have to worry about any inquiries on your report coming from PayPal.
Your Account is Considered Risky
If PayPal does find there to be a risk associated with your Premier or Business PayPal account at any time, they are likely to run a credit check to ensure that the account is, in fact, being used by you.
What constitutes risky behavior?
Things such as many failed login attempts, purchases from a flagged account, or an unusual increase in high dollar amount purchases can alert the system and cause PayPal to check your credit for verification.
You Requested a New Product or Account Add-on
If you request a credit-based add-on such as PayPal credit or a PayPal debit card, PayPal does perform a credit check to verify that you are a reputable borrower for the product.
You’ll be subjected to a soft credit check for a debit card and a hard credit check for a PayPal credit account request. We’ll examine that more in detail in the following section.
PayPal vs. PayPal Credit
So, now we know that having a PayPal account doesn’t automatically correlate to a credit impact, the branch of PayPal Credit does tap into your credit. The PayPal Credit program is different from the Pay in 4 buying option as it provides you with a revolving credit line based on your credit score.
When your PayPal Credit application is approved, you’ll be able to use the payment option at any website or retailers that accept PayPal payments. You can see below how your PayPal Credit will affect your credit score.
How PayPal Credit Affects Credit Score
In order to take advantage of a PayPal Credit revolving account, you’ll need to apply, just as you would for any physical credit card. Because this is a new line of credit, PayPal will perform a hard credit check to see if you’re considered to be a reliable borrower based on your credit history.
This can be determined through your credit score, and the approval process, like with many other credit cards, takes just a few minutes online.
If you’re approved, you’ll be able to use PayPal Credit at retailers that accept PayPal. PayPal Credit is mainly for online purchases. That said, there are a few differences from traditional credit cards in the way that PayPal Credit works.
If your purchase is less than $99, you’ll have to pay for it in full if you don’t want to pay interest on the purchase. If you don’t mind paying interest, you can pay your monthly payment as normal.
For purchases that exceed $99, you’ll be given 6 months to finish paying the debt without being charged any interest at all.
You can also use PayPal Credit to send money to another person via PayPal, and you’ll also need to pay the full amount by the due date if you want to avoid paying interest fees.
Because PayPal Credit is virtually the same as a normal credit card, it will affect your credit score in the same way. That means if you miss a payment or make your payment late, you will see a drop in your credit score as you would with a missed credit card payment.
PayPal Credit can be used with any merchant that accepts PayPal, giving you a flexible credit payment option that you need to maintain in good standing if you want your credit to remain on the up and up.
Thus, you should check your credit report and history to ensure that opening a new line of credit is the right decision for your finances.
More Ways to Be Safe When Using Online Payments
The good thing is that normal use of PayPal to facilitate online payments won’t affect your credit score in any way. It’s also a good idea to be smart when making payments through online platforms. Below you can find 5 tips to keep you safe and responsible when dealing with online payments:
- Sign up for fraud alerts: With the development of technology and the knowledge base of hackers, it is possible in some cases for your financial information to be stolen via online platforms. It’s not generally as easy as simply stealing your wallet, but you should always be wary and prudent in verifying your accounts. Enroll yourself in two-step verification and fraud alerts on platforms that offer it so that you can be alerted if something seems suspicious. You can then take quick action and avoid any unwanted surprises.
- Don’t send money to people you don’t know: With the opportunity of the internet comes many scams, and you should always keep your wits about you. If something seems too good to be true, it probably is. Use good judgment when you buy things through PayPal and other online merchants— buy from verified sellers whenever possible and don’t send money to people you don’t know unless you’ve confirmed that it is legitimate through and through.
- Confirm you’re sending money to the right person: If you send money to the wrong person via PayPall, Zelle, and many other online payment platforms, they take no responsibility, meaning you’ll likely be out of whatever amount you sent. Always confirm the information with the person you’re sending to and verify that you’ve entered it correctly.
- Don’t include personal information in payments: PayPal helps you to avoid revealing your sensitive financial information to sellers, including your credit card number. This is a good step, but you should also limit the amount of information you provide to even these platforms whenever possible. Share only required information and only give your address to those that are trustworthy.
Double-Check the amount you’re sending: Sometimes with a slip of the finger you can add an extra digit to your total amount. If you’re trying to send $25, you certainly don’t want to end up sending $2500! Double check the amount before you confirm the payment.