Affirm is a buy now, pay later company. They offer financing for everyday retail purchases, especially ones that you make online.
Services like Affirm provide an alternative to paying in cash or with a traditional credit card, but are they safe for your credit?
The unfortunate truth is that using Affirm has the potential to damage your credit score—even if you make all your payments responsibly. Read on to learn why this is.
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What is Affirm?
As mentioned, Affirm is a buy now, pay later (BNPL) company. When you shop online, especially on large retail sites like Target and Walmart, you’ll often see a BNPL option when you buy mid-to-high-priced items, such as appliances.
Clicking the BNPL option lets you pay for a single purchase in several smaller installments. When you do so, the BNPL company that the retailer partners with (in this case, Affirm) pays for your purchase immediately. You then pay Affirm back over the course of a few weeks to months.
What services does Affirm offer?
Affirm offers two financing options:
- Pay in 4: With Affirm’s simplest payment plan, you pay off 25% of your purchase immediately and then pay the rest over the course of three installments, one every 2 weeks. With this option, you won’t be charged any interest on your payments.
- Monthly payments: You can also opt for a monthly payment plan. You can choose how many months you want to spread your payments over (e.g., 3, 6, or 12, all the way up to a maximum of 60). With this option, you may be charged interest, sometimes at a very high rate (up to 36%).
As well as having different implications for your finances, these two options also have different impacts on your credit score.
Why does Affirm affect your credit score?
BNPL companies don’t always report to the credit bureaus that produce your credit reports, but Affirm sometimes does. (Currently, they only report to Experian, but may report to others in the future.) 1
Your credit score is calculated from the information that’s reported to the bureaus, so this means that financing with Affirm has the potential to affect your credit score.
Which Affirm financing plans affect your credit score?
Affirm isn’t very upfront about what they report to the bureaus, but CNBC claims that they don’t report the following: 2
- Pay in 4: Currently, Affirm’s “Pay in 4” plans are never reported to the bureaus and never affect your credit score.
- Certain 3-month plans: Some of Affirm’s 3-month loans don’t affect your score, but only ones that meet very specific criteria. The loan has to come with a 0% interest rate, and it has to have been the only financing option you were offered at checkout.
All of Affirm’s other loans (i.e., the vast majority of their monthly plans) have the potential to affect your credit.
To be certain, you should always check the terms of your financing agreement before you commit—it will clarify whether your Affirm financing will be reported or not.
This is a good habit to get into, because Affirm’s reporting policies are somewhat confusing, and they could also change them at any time.
How Affirm can help your credit score
If Affirm reports one of your financing plans, it will show up on your credit report as a loan, like a mortgage or auto loan.
Like all loans, your Affirm account has the potential to contribute to two of the factors that affect your credit score:
- Payment history: If you always pay off your Affirm account on time, it will build the payment history on your credit report, which will gradually improve your credit score.
- Credit mix: Your credit mix is a measure of how diverse your credit accounts are. It’s best to have both loans and credit cards, so if your Affirm account is your only loan (meaning you don’t have a mortgage, for example), it will slightly improve your credit score.
A single Affirm loan won’t massively boost your score, but it has the potential to benefit it somewhat over time. However, there are several (plausible) scenarios in which using Affirm can hurt your credit score more than it will help, which we’ll describe below.
How Affirm can hurt your credit score
Unfortunately, there are a few quirks about Affirm that make it more likely to hurt your credit than help.
Affirm can damage your credit through two mechanisms:
1. Late and missed payments
Making a late payment on almost any credit account will cause a derogatory mark to appear on your credit report, leading to a drop in your credit score. The later your payment (or the more payments you miss), the more your score will suffer.
It’s quite easy to get in a financial bind and miss payments on some of Affirm’s loans, since they can have very high interest rates—up to a staggering 36%. By contrast, in 2021, the average interest rate for a 24-month personal loan was just 9.58%. 3
In extreme cases, if you completely default on a debt that you owe to Affirm, they may hire a debt collection agency to collect it for them. If this happens, you’ll incur an extremely damaging mark called a collection account, which could lower your score by as much as 100 points.
If you use Affirm’s services, it’s very important to make sure you always pay on time to avoid damaging your credit.
2. Opening too many new loans in a short time
Even if you manage your Affirm payments responsibly, it’s still possible for Affirm to hurt your credit.
This is because the length of your credit history is another factor that affects your credit score. Having a lot of new accounts drags down your average credit age, damaging your score.
Most of the time, this isn’t a problem, because most people only open new credit accounts occasionally. However, paying with Affirm’s BNPL service is an option any time you make a mid-sized retail purchase, so if you’re a regular Affirm user, it’s easy to end up with a lot of new credit accounts very quickly.
Affirm isn’t very upfront about this. In a CNBC report on buy now, pay later companies, they quoted one review from a consumer who used Affirm 15 times without being aware of this potential downside. They claimed that their credit age dropped from 11 years to 2 years, hurting their score significantly. 2
Is it possible to use Affirm safely?
Yes, it’s possible to use Affirm safely. You just need to be careful not to take out too many loans and ruin your credit age.
An easy rule to follow is: don’t sign up for a monthly payment plan with Affirm more than once per year. It’s fine to use Affirm more often than that, but if you do, be sure to opt for their Pay in 4 financing option, which (currently) never appears on your credit report or affects your credit age.
Again, whatever you do, don’t default on any debts that you owe to Affirm. If you do, they might get sent to collections, seriously damaging your credit—even Affirm’s Pay in 4 plans, which otherwise never hurt your score.
What are the alternatives to using Affirm?
If Affirm’s downsides have you spooked, don’t worry. There are several alternatives to using their services.
Pay for your purchases upfront
It might seem obvious, but you don’t have to use a BNPL service at all if you commit to only buying things with money you have available now.
This has the additional benefit of making it easier to budget, since you can’t possibly overcommit and get trapped in a cycle of debt, and it lets you avoid the potentially high interest rates on Affirm’s monthly plans.
Pay with a credit card or loan
BNPL services exist as an alternative to credit cards and loans. If you’re worried, you can always go with a more traditional option.
Credit cards are more suitable for occasional purchases that you plan on paying off quickly, whereas loans are better for large purchases that might take longer (e.g., if you just moved and need to furnish a new apartment from scratch, you can take out a personal loan to do so).
If you have a good credit score, you can even mimic Affirm’s 0% interest option by opening a 0% interest credit card, aka one with an introductory period where our purchases won’t accumulate interest.
This option has most of the upsides of Affirm’s financing plans, and as an added benefit, even after the intro period expires, you’ll still be left with a useful credit card that will remain on your credit report and contribute to your credit score in various ways.