How to Apply for a Credit Card in Australia

people trying to apply for a credit card

Are you looking for some extra finance for emergencies, for a big purchase, or are you wanting protection from online fraud? Then a credit card might be just what you’re after! But how can you get a credit card? Tippla has put together a quick and easy guide on how to apply for a credit card in Australia.

people trying to apply for a credit card

What is a credit card?

A credit card is a payment card that is provided by banks and similar financial institutions to allow the cardholder to pay a merchant for goods and services using a line of credit. 

So what does this mean? Basically, the money spent on a credit card isn’t the money that you have earned from your job. Instead, it’s a revolving line of credit that you need to repay each month, or at the very least, make the minimum repayments if you want to avoid late fees.

Am I eligible for a credit card?

Who can receive a credit card? This will vary from card to card, and it depends exactly what you’re after. But there are a few general requirements that are applicable for most cards. 

These requirements are:

  • You must be over the age of 18;
  • An Australian citizen or permanent resident and hold a valid visa;
  • Not be going through bankruptcy;
  • Have a decent credit score;
  • Have a stable job and steady income that will allow you to repay the maximum credit card limit.

When it comes to meeting the requirements of a credit card, the main thing the credit provider is concerned with is whether you have the ability to repay your credit card balance every month.

Can you get a credit card with no credit score?

One of the general requirements for a credit card is to have a good credit score. This shows you are responsible with your finances and can make your repayments on time. But what if you don’t have a credit card? Or what if you have a bad credit score? Can you still get a credit card?

The short answer is yes, but your options will be more limited than if you had a good credit score. The main thing banks and other credit card providers are concerned about is whether you can repay your balance. You can do this by showing them you are responsible with your money.

This could mean, highlighting that you have a steady income, a stable job and that you can save consistently. Furthermore, One thing you could do before applying for a credit card is to build your credit history or improve your credit score so that you have a lot more options at your fingertips.

Your options

If that isn’t an option, there are still things you can do. If you’re studying at university, TAFE, VET or working in an apprenticeship, then you may be eligible for a student credit card. You can apply for these types of credit cards without needing a credit score. However, you need to be a student to apply for this kind of credit card, and it might not offer the best terms and conditions compared to other types of credit cards

Alternatively, there are such things as secured credit cards. Similar to a secured personal loan, a secured credit card is where your credit card is “secured” AKA, guaranteed to be paid. This is achieved by having a cash deposit in your bank account that’s the same as your credit limit.

You can also call your current bank and explain your situation. If you have been a customer with them for a while, they might be able to offer you a credit card based on your personal circumstances.

Can you get a credit card on Centrelink?

If you currently receive financial assistance from the government, are you eligible for a credit card? Yes, being on Centrelink doesn’t mean you can’t get a credit card. However, your options might be more limited.

Before applying for a credit card, it’s important to make sure you understand and meet the eligibility requirements. You can compare your options on numerous comparison websites, however, they might not cover the entire market. You can also contact your bank to see if they have any options that meet your needs.

Generally speaking, if you can meet the common requirements – age, Australian citizen or resident, minimum income and good credit history, then there should be a credit card out there for you, regardless of whether you receive help from Centrelink.

Where can you apply for a credit card?

When you’ve determined your eligibility, the next question is where can you get a credit card? Nowadays, you can get credit cards from many different companies – and not all of them are financial institutions. It’s no longer just banks that have a monopoly.

Here is an overview of who offer credit cards in Australia:

  • Australian and international banks;
  • Financial institutions, 
  • Airlines, such as Qantas and Virgin;
  • Supermarket chains, such as Woolworths and Coles;
  • eCommerce companies like Kogan;
  • Department stores, including David Jones.

How to apply for a credit card in Australia

Here are the simple steps you can take to apply.

1. Do your research

Before you apply for a credit card, one of the best things you can do is research all of your options. Check if you are eligible for a credit card, and discover which credit card is best for you. Could you benefit from a rewards card, or would a card without an annual fee be more worth your while?

Here are some questions you can ask yourself when trying to determine whether a credit card is right for you, and if so, what type of card would best suit your needs:

  • What will I be using the credit card for – day to day spending, to pay for bills, or to make big purchases every so often;
  • Will I be able to pay off my credit card in full each month?
  • Am I, at times, forgetful and not the best at sticking to a budget and therefore, likely to carry over a balance each month?
  • Do I travel a lot?
  • Do I exclusively do my grocery shopping at one brand – like Coles or Woolworths?
  • Do I need a credit card, and can I afford it? Do I already have a lot of debt?
  • Will a credit card help or harm my credit score?

2. Contact the company you want to apply with

Every time you make an application for credit the company that you apply with will check your credit score and report unless you go with a no-credit-check lender. When a lender checks your credit report, it registers as a hard enquiry on your report, and it harms your credit score. 

The hard enquiry will be registered on your credit file regardless of whether you’re approved for the credit or not. Because of this, another thing you can do is when you’ve made a decision on which card you want and where you want to apply, you can contact the company directly.

Why would you do this? Because you can clarify with them whether you meet the eligibility criteria. They probably won’t be able to tell you whether you’ll be approved or rejected without you making the application, but they might be able to give you a better idea. Therefore, when you make the application, you can be more secure in the fact that you will be approved, and keep the impact on your credit score to a minimum.

3. Submit your application

Once you have done your research, and you’re sure you meet all of the eligibility requirements, you can then submit your application. Most companies will allow you to apply online. These forms generally don’t take very long.

Alternatively, if you’re applying for a credit card with a bank, you can go to your local branch and submit your application in person.

Summing it up

 We’ve thrown a lot of information at you, so let’s sum it up. Here’s how to apply for a credit card in three easy steps:

  1. Do your research – identify why you need a credit card and which type of card would be best for you. Once you have determined this, you can then find which company can offer you the best deal;
  2. Make sure you meet the eligibility criteria – when you’ve found which card you want, take a look at the eligibility criteria to make sure you meet the company’s standards. If you’re not sure, you can contact them to try and get a better idea;
  3. Make your application – the easiest way is to apply online, however, if you’re applying with a bank, then you can go into your local branch if you’d prefer to do it in person.

Bad Credit Loans | What Are They & How To Apply for Them

bad credit loans

If you have a below-average credit score but you still want to take out a personal loan, what are your options? There is such a thing as bad credit loans. Tippla has provided a breakdown of bad credit loans below – what are they, the pros and cons of poor credit loans and how to apply for them.

bad credit loans

What are bad credit loans?

As the name suggests, a bad credit loan is a loan you can take out when you have a “bad” credit score, also known as below average. The point of a bad credit personal loan is to allow people who don’t have a stellar credit history the opportunity to still access finance. 

This can be helpful for people who need a loan but don’t have a great credit history and don’t have the time to improve their credit score.

Why does my credit score matter when applying for a loan?

Your credit score is a number ranging from 0 – 1,200 and it acts as an indicator of how reliable of a borrower you are. Your credit score is based on your recent credit history – your credit applications, your repayment history, the number of credit accounts you have, and any negative entries if applicable (defaults, bankruptcies, court judgements, etc).

Because of this, your credit score gives credit providers a helpful overview of how you have managed credit in the past. Lenders and banks use your credit score to judge how much of a risk you pose to them when you apply for some kind of credit, whether it be a loan, credit card, mortgage and more.

The higher your credit score, the more reliable of a borrower you are perceived to be. This can go a long way when it comes to applying for credit. This is because you’re more likely to be approved for a loan if you have a good credit score and positive credit history.

On the reverse side, if you have a bad credit score and a bad credit history, then your loan application might be rejected and credit because lenders will see you as too much of a risk.

What is a bad credit score?

Your credit score will fall somewhere on a five-point scale: excellent, very good, good, average and below average. Below average is also referred to as a “bad” credit score. 

Where your credit score falls will depend on the Credit Reporting Agency (CRA). In Australia, there are three CRAs – Equifax, Experian and illion. Each of these three agencies collects your credit information and generates your credit scores and reports. That means you have not one, but three credit scores and reports.

Equifax measures its credit scores on a scale from 0-1,200, whereas Experian and illion use a scale ranging from 0 – 1,000. Here’s how Equifax and Experian categorise their credit scores.

good credit score

Source: Equifax and Experian

The pros and cons of bad credit loans

Are bad credit loans a good or a bad thing? Well, there are arguments for both sides. So let’s take a look at the pros and cons of bad credit loans.

Pros

1. Access to finance

One of the good things about bad credit loans is that it provides people who don’t have the best credit history with access to finance. Generally, the turnaround for these types of loans is quite fast, which can be helpful if you need cash quickly.

2. Can help you rebuild your credit

If you take out a loan, it can be your opportunity to rebuild your credit history. If you can make all of your repayments on time, and you can pay off the loan in full, these actions can both positively contribute to your credit score.

3. Extended repayment period

In Australia, you can get a range of bad credit loans, with varying repayment periods. This means you don’t have to pay back the amount you borrowed straight away, you can space out your repayments into affordable instalments.

Cons

1. High-interest rates

Lenders are taking on more of a risk by lending to people with a bad credit score. Because of this, they offset their losses with high-interest rates. Depending on where you go, you could be facing interest rates of up to 30% per annum in the most extreme cases. 

The amount you pay in interest can add up over time, and it can hurt your wallet. You should make sure you can afford the repayments, including any interest and fees and charges, before taking on a loan.

2. Fees

Not only do bad credit loans come with higher interest rates, but they can also come with more fees. Again, this is a way for lenders to offset the risk of lending to someone with a bad credit score. 

Just like interest, the amount you pay in fees can add up quickly if you’re not careful. That’s why it’s important to read the terms and conditions before taking on a loan.

3. Lower borrowing limits

Typically, if you have bad credit, then you might not be able to borrow as much as you’d like. This will differ from lender to lender, and you might find some that are willing to lend higher amounts, but again, you’ll likely be paying for this in interest and fees.

4. Collateral requirements

Some lenders may require you to offer some kind of collateral to take out a loan. If you default on the loan, then you could be at risk of losing your collateral.

Who offers bad credit loans?

Many lenders offer loans for people with bad credit. A simple google search for bad credit loans will produce pages of results of lenders who are willing to provide loans.

Typically speaking, you are more likely to find non-bank lenders who are willing to take on the added risk of lending to someone with bad credit. 

How to apply for bad credit loans

Before applying for a loan, you should make sure you meet the criteria of the loan. In Australia, you will typically need to meet the following criteria:

  1. Be at least 18 years old;
  2. Be an Australian or New Zealand citizen (or Australian permanent resident/have an eligible Visa);
  3. Live in Australia;
  4. Be employed and receive a regular income.

You can apply for bad credit loans similar to how you would apply for any other loan, however, it is a good idea to do your research before applying. You should try and compare the different options out there, and see which lender can offer you the best conditions, such as interest rates and associated fees.

Bad credit loans: the verdict

To sum it all up, there are pros and cons to bad credit loans. If you are unsure if this type of loan is right for you, then you can reach out for free financial advice with a financial counsellor from the National Debt Helpline.

Who Looks at Your Credit Report? A Quick Overview

Who Looks at Your Credit Report

In Australia, you have three credit scores and credit reports. The information contained on your credit report can be the difference between you being approved or rejected for a loan. But who looks at your credit report and why? Tippla has the answers for you below.

Who Looks at Your Credit Report

What is a credit report?

A credit report is a document that contains your recent personal and credit financial information. What does this mean? If you have taken out any form of credit (a loan, credit card, utilities, phone plan, etc), then this will appear on your credit report. 

Specifically, here’s a rundown of what information will appear on your credit report:

  • Personal information – such as your name, address, date of birth and employment;
  • Credit account information – all of the credit accounts you currently have open or have closed in the past two years, such as any loans, credit cards, utilities, and more;
  • Repayment history – your repayment history for your credit accounts will be listed on your report;
  • Credit applications – every time you apply for some kind of credit, regardless of whether you were approved or rejected, it will appear on your report;
  • Negative entries – this includes bankruptcies, defaults, public records and court judgements. 

How long do items stay on your report?

Your whole credit history won’t appear on your report. All of the information has an expiry date. Here’s a rundown of how long you can expect information to stay on your report:

  • Credit accounts – all current accounts, and any that you have closed in the past 2 years;
  • Credit applications – 5 years;
  • Repayment history – your report will show your repayment history over the past 2 years;
  • Defaults – these will appear on your credit report for up to 5 years;
  • Court judgements and bankruptcies – 5 years;
  • Serious credit infringements – up to 5 years.

Why does your credit report matter?

When you apply for any kind of credit, whether it be a mortgage, or even a personal loan or electricity provider, they will check your credit report to see how risky of a borrower you are.

They will look at your credit score, a number ranging from 0 – 1,200 which is based on all of the information contained in your report, as well as your credit file. They will look at this information, as well as other documents that give them an idea of your financial situation, such as your bank statements, employment details, etc.

So, why does your credit report matter? It is one of the ingredients lenders, banks and other credit providers use to determine whether they will accept or reject your application. Therefore, your credit report could be the difference between you being accepted and rejected for a loan.

Who looks at your credit report and why?

With this in mind, who looks at your credit report, and why? Not just anyone can look at your credit report. Your friends, your neighbour, even your employer – none of them can access your credit report. Only companies that you permit to view your report can see your file.

Every time you apply for credit, you are giving the company you’re applying to permission to view your credit report. This permission will often be granted in the terms and conditions of the application. They check your credit report to get an idea of your creditworthiness and assess how much of a risk you are.

Therefore, any company that you apply for a credit card, loan, utilities, phone plan, and more with, can view your credit report – but, only if you permit them. However, generally speaking, if you don’t consent to a credit search, it’s unlikely your application will be processed.

There are a few loans out there that claim to not check your credit score. These are called “no credit check loans”. However, they are usually only small personal loans, and they often come with high interest rates and fees.

What do lenders look for on your credit report?

When lenders, banks, and other credit providers check your credit report, what are they looking for? Generally speaking, when a company looks at your file, they’re trying to get a sense of how reliable you are. 

They will be looking out for any credit defaults, which indicates that you haven’t been able to meet your repayments in the past. They will also check how many open accounts you already have – too many can make you more of a risky borrower.

Other things they will look out for – negative entries, repayment history, maturity of your accounts, and more. The purpose of them checking your report is to get insight into whether you are likely to repay the amount you want to borrow.

Do you have a below-average credit score and want to improve it? Check out Tippla’s helpful guide on how to improve your credit score here.

Has Your Credit Report Been Updated? Here’s What to Check

credit report

Every three months, your Equifax and Experian credit reports will be updated on Tippla. We’ve put together a helpful guide to allow you to understand what might have changed.

credit report

How often is your credit report updated on Tippla?

From when you log into Tippla, your Equifax and Experian credit reports will be updated on a quarterly basis (every 90 days). You will receive an email letting you know when your credit reports have been updated.

Why does it matter that your report has been updated?

What does it mean when your credit report gets updated? Generally, it can mean a couple of things – namely, your credit score might have increased or decreased since the last update. Whether your credit score goes up or down or remains the same, will depend on your credit activity.

Why is this important? We recently put together an informative article on why your credit score matters. To sum it up – your credit score could be the difference between you being accepted or rejected for a loan or other types of credit.

Furthermore, every time your credit report updates, it gives you the opportunity to check all of the information on your credit reports is accurate. This is important for several reasons, below we’ve listed just a few:

  • New information can help you understand what goes onto your credit report and what affects your credit score;
  • You can identify any mistakes in your report. If you spot a mistake early on, you can have it removed quickly and limit the damage to your credit score and credit applications;
  • You can detect if you’ve been a victim of identity theft early on.

What changes can I expect on my credit report?

You’ve just received an email from Tippla that your credit report has been updated. But what changes should you be looking out for?

1. Your credit score

When your credit report is updated, new information might be added to your report, or older information might expire and be removed from your report. Because of this, your credit score can change when your report is updated.

Equifax Credit Report

When you get a notification from Tippla that your credit reports have been updated, log into your Tippla account, and check whether your credit score has changed. You can see your credit scores straight away when you log into your Tippla account.

Your credit score can either increase, decrease or stay the same. If you previously didn’t have a credit score, but you have since taken on some form of credit, then you might find that you now have a credit score. 

My credit score has dropped, what can I do?

If you log into your Tippla account and discover that your credit score has dropped, you might be wondering what went wrong. There are a number of things that can lower your credit score:

  • When you apply for a loan or type of credit, the company you’ve applied to will check your credit report. This is referred to as a hard enquiry and it lowers your credit score;
  • Have you recently defaulted on one of your credit repayments? This can harm your credit score;
  • Have you recently entered into bankruptcy or made any serious credit infringements? This can harm your credit score.

For a full breakdown of what affects your credit score, check out Tippla’s article here. You can also find a helpful guide on how to improve your credit score on our financial blog.

2. New credit activity and accounts

When your credit report is updated, your credit activity will also be updated, if applicable. If you have taken on a new line of credit, such as a credit card or personal loan, then this will appear in your credit activity.

If you have closed any accounts, such as you’ve repaid a loan, or you have cancelled your credit card, these accounts will still remain on your credit report for two years, however, the status of these accounts will be changed to ‘closed’. After two years, these closed accounts will be removed from your report.

Below, we have highlighted where you can find your credit activity on Tippla. 

Credit Activity

3. New credit enquiries

If you have made any new credit enquiries – ie. applied for a loan or credit card, as an example, then these will also appear on your credit report. Credit enquiries will appear on your report regardless of whether you were approved for the loan.

4. Negative entries

Negative entries are events on your credit report which will lower your credit score. “Negative entry” refers to any negative financial behaviour that indicates that you haven’t effectively managed your debt.

Examples of negative entries include:

  • Late payments on loans or credit cards;
  • Delinquent accounts;
  • Charge offs;
  • Bankruptcies;
  • Accounts that have been sent to collection;
  • Foreclosures.

When your credit report updates, if any of the above is applicable to you, say you were late with a loan repayment or you have entered into bankruptcy, then this will appear in your updated credit report.

4. Personal information

When your credit report is updated, your personal information can also be changed. If you have moved to a new place, recently changed your name, or changed your employment, and you’ve let a lender or credit provider know, then your personal information could change.

It’s important to keep your personal information up to date and ensure it’s accurate. Having inaccurate personal information on your credit report can lead to multiple credit files in your name.

On Tippla, you can check for new credit accounts, enquiries, public records, court judgements and your personal information here:

credit enquiries

Why Is Your Credit Score Important? A Quick Overview

Why Is Your Credit Score Important

Whilst your credit score is only a number, it actually can impact your life in a very real way. So why is your credit score important? Tippla has the answers for you below.

Why Is Your Credit Score Important

What is a credit score?

Before we answer the question “why is your credit score important” it’s important to cover the basics first. What is a credit score? If you’re not sure what a credit score is – you’re not alone. In Australia, 73% of Australians don’t know their credit scores or why they are important.

Your credit score is a number ranging from 0 – 1,200. This number represents your creditworthiness (translation: how reliable of a borrower you are). The higher your credit score, the more reliable of a borrower you are perceived to be.

What is a reliable borrower?

A reliable borrower is someone who makes repayments on time. If a person takes out a loan, a reliable borrower would be expected to make their monthly repayments on time and during the length of the loan, completely repay their debt plus interest. 

For a lender, a reliable borrower is seen as less of a risk, as they are more likely to repay the loan in full. A risky borrower, however, might miss payments, or default on their repayments. This means the lender could lose money if the borrower can’t repay the loan. A risky borrower would likely have a below-average credit score.

Who can see my credit score?

Your credit score is sensitive information. This means, not just anyone can see your credit score. You need to provide consent in order for a company to see your credit score.

So when does this happen? Every time you apply for credit – this could be a loan, credit card, phone plan or utilities, you are giving the company you are applying to permission to view your credit score and credit report.

When the credit provider looks at your credit score and report, they can judge how risky of a borrower you are, and determine what products they would be willing to offer you. If you have a below-average credit score, your application could be rejected.

How many credit scores do I have?

In Australia, there are three credit reporting agencies (CRAs) – Equifax, Experian and illion. Equifax and Experian are the two largest global CRAs. Each month credit providers report consumer credit information to either of these three agencies. The information these agencies receive from credit providers is what they use to calculate your scores.

Because of this, you have not one, but three credit scores in Australia. You have one each from Equifax, Experian and illion, and an adjoining credit report which holds all the information your credit score is based on.

What’s the difference between your credit score and credit report?

Your credit report holds all of your recent credit history. This includes any current credit accounts – loans, credit cards, utilities, phone plan, etc. It will also have your repayment history for the last two years, any closed credit accounts from the past two years, and any negative entries (defaults, bankruptcy, court judgements, etc).

Your credit score is a number ranging from 0 – 1,200. Your credit score is based on the information held on your credit report. If your credit report shows a good credit history, then you will likely have a high credit score. However, if there are multiple negative entries on your credit report, then your credit score will likely be lower.

How are credit scores calculated?

This question is a bit tricky because the exact algorithm credit agencies use to calculate your credit score is a well-kept secret. Not only that, but each of the three agencies calculates your score slightly differently. This means your credit scores can be different across the three agencies.

Nonetheless, we do know the general factors they consider when calculating your credit score.

These are the general factors used to calculate your Equifax credit score:

  • The number of accounts you have;
  • The types of accounts;
  • The length of your credit history;
  • Your payment history.

For Experian, the main factors it considers when calculating your credit score are:

  • Type of credit providers that have made enquiries on your report;
  • The type of credit you have applied for;
  • Your repayment history;
  • The credit limit of each other credit products;
  • Negative entries;
  • The number of credit enquiries (credit applications) you have made.

When is a credit score used?

Credit providers, such as banks, lenders and other financial institutions, use your credit score to evaluate whether they should give you credit or lend you money. They use your credit score to determine how much of a risk you pose and decide whether you qualify for a loan or credit, how much interest they should charge you, and how high your borrowing limit should be based on your credit history.

Why is your credit score important?

With all of this in mind – why is your credit score important? There are several reasons why which we’ve outlined below.

Your credit score can help or hinder your application

Your credit score can be the difference between you being accepted or rejected for credit. If you are applying for a large loan and you have a below-average credit score, the lender you’re applying with might determine that you’re too risky of a borrower and reject your application.

A good credit score, on the other hand, could boost your application. If you have a strong credit history, then a lender might look at your application more favourably and approve your loan application.

This is one of the reasons why your credit score is important.

Interest rates

The interest rates you’re charged when you take out credit can end up costing you a lot over the lifetime of the credit. That’s why it’s a good idea to try and find loans, credit cards and other credit products with lower interest rates.

However, whether you can access low-interest-rate products can be heavily dependent on your credit score. Why is this? Lenders and financial institutions use interest rates as a way of protecting themselves against risk.

If you are deemed to be a risky borrower, then you will likely only be offered products with high-interest rates. That way, they get more money out of you quicker, so if you default on a repayment, they could already have a decent portion of the money they lent to you repaid.

This is another reason why your credit score is important – it can determine what products you’re offered and, if you have a good credit score, save you a lot of money in the long term.

Borrowing limit

Your credit score can also affect how much you can borrow. As with most things, it all boils down to risk. The bigger the loan, the bigger the risk could be for the lender should you default.

If you have a below-average credit score, then a lender might decide that it’s not willing to offer you a high borrowing limit and reject your application or only offer you products with lower borrowing limits. 

However, if you had a good or higher credit score, then a lender could be willing to lend you larger amounts because you’re seen as less of a risk. This is how your credit score can influence how much you’re able to borrow.

What other factors do lenders look at?

It’s important to point out that your credit score is not the only factor that banks and lenders use to determine whether to lend you money. There are a range of factors they consider when making this decision. Nonetheless, your credit score is an important component of their decision.

Here’s what else they will likely consider:

  1. Your bank statements – credit providers will typically ask for your bank statements from the past three months. This way they can get an insight into your spending habits and savings so they can see if you are responsible with your money.
  2. Employment status and income – companies will want to ensure that you have reliable employment. Why? Because reliable employment infers that you are and will continue to receive regular income.
  3. Government benefits – if you rely too much on government benefits then companies might not be willing to lend you money.
  4. Gambling – do you gamble a lot? If so, this could be a red flag for lenders.

What is a good credit score?

A good credit score varies among the three CRAs. This is because they have different scales to rank your scores. Equifax measures your credit score on a scale from 0 – 1,200, Equifax, on the other hand, uses a scale of 0 – 1,000.

Here’s how they categorise your credit score:

good credit score

Source: Equifax and Experian

How can you improve your credit score?

There are many ways you can improve your credit score. Here’s a quick breakdown to get you started:

1. Space out your credit applications

Each time you apply for credit, the company you have applied with will check your credit score. This is known as a hard enquiry and it lowers your credit score. Therefore, it’s a good idea to space out your credit applications.

Instead of applying for multiple loans and types of credit at once, you could instead do your research and make sure you meet the criteria before applying. You could also just make one application and wait and see if you are approved before going on to apply for other credit.

2. Make your repayments on time

Your repayment history contributes to a good chunk of your credit score. If you can show that you can make your repayments on time whenever you take on credit, then this will reflect positively on your credit report and boost your credit score.

On the flip side, if you miss your credit repayments frequently, then these will be listed as defaults on your credit report. Each time you default it will drag down your credit score. Not only that, but defaults stay on your credit report for up to five years. 

This means each time you apply for credit in the next five years, every company you apply with will be able to see that you have previously defaulted on a payment. This will put you in the higher-risk category.

3. Check your credit report frequently

1 in 5 credit reports have some kind of mistake on them. This mistake could be an administration error, or it could be an indication that you’ve been a victim of identity theft.

Either way, mistakes in your credit report can harm your credit rating. That’s why it’s important to check your credit report frequently. That way you can identify a mistake early on and take the steps to remove the mistake.

4. Be consistent

Negative entries remain on your credit report for years. That’s why it’s important to be consistent with your good credit behaviour. One mistake can stay on your report for five years or more, and that mistake can affect your credit applications during this time. That’s why consistent positive credit behaviour can improve your credit score.

The verdict: Why is your credit score important?

To sum everything up, here’s why your credit score is important: 

  • It could be the difference between you being accepted and rejected for credit;
  • It can determine your borrowing capacity;
  • It can affect the interest rates you’re charged (and either save or cost you money in the long term);
  • It can impact what utilities and phone plans you can access.

Can You Get a Personal Loan with No Credit Score?

Get a Personal Loan with No Credit Score

Are you looking for a personal loan, but you’re worried about not having a credit score? Can you even get a personal loan with no credit score? Tippla has put together this helpful guide to answer your questions.

Get a Personal Loan with No Credit Score

Why does a credit score matter when applying for a personal loan?

Your credit score is a number ranging from 0 – 1,200. This number represents your creditworthiness, AKA, how reliable of a borrower you are. The higher your score, the more reliable you are perceived to be. If you have a low score, then you are deemed as a higher risk.

Your credit score is viewed by credit providers, such as lenders, banks, utility companies and more, every time you apply for some kind of credit. This could be a loan, credit card, phone plan and more.

When you apply for a personal loan, your credit score is one of the many ingredients lenders and credit providers use to determine how risky of a borrower you are. Because of this, your credit score can affect your loan application.

Whilst your credit score isn’t the only factor lenders consider, it can strengthen, or if you have a below-average or no credit score, weaken your loan application. That’s why it’s a good idea to know what your credit score is, and how to improve it.

What does having no credit history mean?

If you don’t have a credit score at all, it means one of the measures lenders use to assess your application is missing. This means they have less information to make an informed decision.

If you don’t have a credit score, this could be a red flag for a lender. Because of this, you might only be offered loans with higher interest rates or your application could be rejected entirely. Therefore, having a good credit score or higher can improve your chances of being approved for a personal loan.

What do lenders look at when applying for a personal loan?

Your credit score is only one of the factors that lenders and banks use to assess your loan application. Some of the other things they also look at include your salary, spending habits, length of employment, government benefits and more.

Here are some of the minimum requirements for applying for a personal loan:

  • Be 18 years or older;
  • Be an Australian or New Zealand citizen, or have Australian residency or valid visa;
  • Live in Australia;
  • Meet the minimum income requirements;
  • Not be going through bankruptcy;
  • Have employment or receive a regular income;
  • Have a good credit rating.

What are my options to get a personal loan with no credit score?

If you don’t have a credit score, it doesn’t mean that you can’t get a personal loan. However, it will reduce your options. Furthermore, some loan types and amounts could be completely out of your reach if you don’t have a credit score.

This means you might not be able to get the type of loan or borrow the total amount that you want because you don’t have a credit score. Nonetheless, there are still avenues you can explore to get a personal loan.

Here are some of the options available for you to get a personal loan with no credit score.

No credit check personal loans 

In Australia, you can get a personal loan without the lender performing a credit check. This could be an option if you don’t have a credit history However, no credit check personal loans are very difficult to find, and the options are limited. 

For no credit check personal loans instead of looking at your credit history, lenders will instead look at your income, employment status, existing debts and other criteria when looking at your loan application. 

Because these loans are riskier for the lender, no credit check personal loans will often come with higher interest rates and fees. 

Secured personal loans

When it comes to personal loans, there are two main types – unsecured and secured personal loans. A secured personal loan is a loan guaranteed by an asset, such as a car, motorbike, or something similar. The asset acts as security, which is where the name “secured” personal loans comes from. If you default on your loan, then your asset could be repossessed as a way to cover your repayments.

Because of the extra security, secured personal loans are generally easier to obtain from a reputable lender. They typically come with lower interest rates and fees as there is less risk for the lender.

If you don’t have a credit score, taking on a secured personal loan could be an option for you. However, just because secured personal loans on average can have lower interest rates, if you have no credit history at all, you still might be charged higher interest rates than someone with a good credit score, regardless of whether the loan is secured or not.

How to build a credit history from scratch

Whilst you can get a personal loan without a credit score, it’s not necessarily your best option. So how can you build a credit history from scratch? Here are a few things you can do.

Open a bank account

If you’re trying to build your credit history, a good starting point is to open a bank account for yourself. Having a bank account can help you apply for credit later down the track. It is also a good way of tracking your spending, which is something that lenders like to see when you apply for a loan.

Although opening a bank account won’t directly impact your credit score, it could be a good starting point.

Add your name to your utilities

If you live out of home and have utilities, such as water, gas or electricity, then it could be a good time to add your name to your utility bills. Your utilities are a form of credit. If your name is on the account, then each payment you make could go towards building your credit score.

Apply for a credit card

Another way you can build your credit history is by applying for a credit card. Whilst your choices are more limited if you don’t have a credit score, there are still options out there.

For example, you could get a student credit card or a secured credit card. Alternatively, if you have had a bank account with a bank for a while, they might be willing to provide you with a credit card. 

Proactively provide information to credit bureaus

Credit bureaus base your credit reports and scores on the information provided to them by the companies you have credit with. If you don’t have any credit, then the bureaus likely won’t have any of your information.

One way you can change this is by providing your information directly to the credit bureaus. You could, for example, send them a document to prove your identity and address. If you move house, it’s important that you update your address, so you don’t end up with multiple files with different credit information.

How long will it take to build a credit history?

Unfortunately, you can’t build a good credit history overnight. As the saying goes, good things take time. If you don’t have any credit history, the good thing is that you don’t have to wait for negative entries to be removed from your credit report. However, it will still take time for your good credit behaviour to reflect on your credit score.

According to Experian, one of Australia’s largest credit bureaus, it takes between 3 and 6 months until they have collected enough data to calculate a score for you.

What’s the best credit score for a personal loan?

Whilst there is no “perfect” credit score, if you are wanting to apply for a personal loan, you should be aiming for a credit score that is either good or higher. The better your credit score, the more options you will have.

good credit score

Source: Equifax and Experian

Bad credit score? Here’s how to improve your credit score

What if you have a below-average credit score? Similar to having no credit score at all, this can limit your finance options, and you will likely be offered loans with higher interest rates, fees and less desirable lending conditions.

Here are 3 easy ways you can improve your credit score.

Space out your credit applications

When you apply for a loan, the company you apply with will check your credit report. This is known as a hard enquiry and will lower your credit score. Because of this, it is a good idea to limit your credit applications to protect your credit score. 

You can do your research, compare your options, and apply for loans where you meet all the criteria. This could limit the number of applications you need to make and protect your credit score.

Make your repayments on time

Your repayment history contributes to your credit score. If you miss your credit repayments or default on one of your bills, then this could appear on your credit report and drag down your credit score. With this in mind, it’s important to ensure you always make your repayments on time. 

How can you do this? You could set up automatic payments, budget so you have enough money in your account to afford the repayments, and don’t take on more debt than you can afford to repay.

Check your credit reports frequently

Frequently checking our credit reports can allow you to identify a mistake on your credit report quickly. 1 in 5 credit reports has some kind of mistake on it. Sometimes this mistake can be harming your credit score.

If you are frequently checking your credit report, you will be able to identify mistakes early on and have them removed. This can protect your credit score from being dragged down by inaccurate information.

Should You Pay Off Your Credit Card or Personal Loan First?

Pay Off Your Credit Card or Personal Loan First

Do you currently have credit card debt as well as a personal loan? You might be wondering what’s the right course of action: should you pay off your credit card or personal loan first? Tippla has put together this helpful guide to allow you to make an informed decision.

Pay Off Your Credit Card or Personal Loan First

Learning the differences between debt

When you’re trying to decide which debt you should pay off first, it’s important to understand the differences between debt. Your credit card debt and personal loan will likely have different interest rates, terms and conditions.

With this in mind, it’s important to understand the differences between the two.

Interest rates

When it comes to deciding what debt to pay off first, it’s a good idea to compare the interest rates between the two. Typically, credit cards charge higher interest rates than personal loans do.

credit card interest vs personal loan interest

Annual Percentage Rate

The Annual Percentage Rate (APR) is the total amount of interest you will pay each year, before compound interest. The APR is represented as a percentage of the balance. The APR doesn’t include fees, such as account opening and maintenance fees.

For a credit card, say you have an APR of 10%, you will pay approximately $100 annually for each $1,000 borrowed. However, credit cards can have more than one APR. They can have one for purchases, one for cash advances and one that is charged when you make late payments.

Fees

Both credit cards and personal loans have fees associated with them. When considering which debt to pay off first, you should also consider the different fees you could be charged if you don’t pay off your debt.

Credit card fees

For credit cards, the most common fees include:

  • Annual fees – the majority of credit cards come with an annual fee which you’ll be charged each year. The cost of this fee will vary depending on which credit card you have.
  • Interest – You will be charged interest when you carry a balance, ie. when you don’t pay off your credit card debt for the month. The amount of interest you’ll be charged will depend on your card.
  • Cash advance fee – When it comes to credit cards, a cash advance is when you withdraw money from an ATM with your credit card or buy foreign currency. When you do this you will generally be charged a cash advance fee.
  • Late payment fee – At the end of each month you’ll receive your bill for how much you’ve spent on your credit card. If you don’t pay at least the minimum amount by the due date you’ll likely be charged a late payment fee.
  • International transaction fee – If you use your card overseas or make a purchase online with an international merchant, you will likely be charged a fee. 

Personal loan fees

For personal loans, the most common fees include:

  • Establishment fees This fee is charged when you take out a personal loan. It is charged to the borrower to cover the establishment of the loan.
  • Ongoing monthly fees Some lenders might charge ongoing monthly fees, such as account management fees. 
  • Late payment fees Similar to credit cards, if you miss a loan payment, then you could be charged a late payment fee.
  • Early repayment fee Some personal loans don’t allow you to repay them earlier than the set term. This is because, if you pay off your loan earlier, then you save money in interest. To offset this potential loss, lenders might charge an early repayment fee.

Comparison rate

When you look for personal loans, you will likely see two rates attached to the loan – the interest rate and the comparison rate. The comparison rate is the combination of the interest rate and most of the fees and charges that you will incur if you take on this loan. The comparison rate is a more accurate representation of how much extra you’ll be paying on top of the loan.

How to pay off your debt

When it comes to paying off your debt, there are two main methods people tend to use. These are the snowball and the avalanche system. Let’s take a look at them both.

Snowball system 

The snowball system is when you organise all of your debts from the largest to the smallest amount. Once you have organised your debts like this, the snowball method dictates that you make the minimum repayments for all of your larger debts, and focus your attention on your smallest debt.

As part of the snowball method, you aim to pay off your smallest debt as quickly and comfortably as possible. To achieve this, you could pay more than the minimum amount. If you have spare cash, then you could put it straight into repaying this loan.

Once your smallest debt is repaid, then you will move onto the second smallest debt. This cycle would continue until your largest debt is paid off.

Avalanche system 

Similar to the snowball system, you approach the avalanche system by organising all of your debts. However, with this method, you rank them from the highest interest rate to the lowest. 

Once you have ranked your debts, the avalanche method dictates that you make the minimum repayments towards your debts with the lowest interest rate, and increase the amount you pay for your highest-interest debt. 

This method is particularly beneficial if you want to save money because paying off interest can add up quickly.

You could also try debt consolidation to get on top of your credit card debt and personal loan.

Should You Pay Off Your Credit Card or Personal Loan First?

Let’s sum up all of the information and points we’ve discussed in this article. Should you pay off your credit card or personal loan first? Here are the main things you should consider:

  1. The interest rate – which one is costing you the most in interest?
  2. Fees – which one is costing you the most in fees. Do the fees outweigh the interest you are paying?
  3. What can you afford to pay off?
  4. Which method best suits your lifestyle – the snowball or avalanche method?

Most publications recommend that you pay off the debt which is charging you the most in interest. However, this might not be the best approach for every situation. If you are unsure of what’s the best course of action for you contact a free financial counsellor. They can provide you with advice based on your circumstances.

What’s The Difference Between Visa and Mastercard?

difference between visa and mastercard

Visa and Mastercard are household names, recognised across the world. But do you know what’s the difference between Visa and Mastercard? If you don’t, then be sure to read on, we’ve got the answers you seek!

difference between visa and mastercard

What are Visa and Mastercard?

Visa and Mastercard are both financial services companies that facilitate electronic payments across the world. They’re one of the big four companies that dominate the industry, joined by American Express and Discover.

Both Visa and Mastercard don’t provide physical cards nor do they extend credit to individuals, instead, they have partnered with a range of banks and financial institutions to offer their services. The two companies provide the largest range of products spanning credit, debit and prepaid options.

So what does this mean? Because the two companies are just digital payment platforms, they have minimal influence over the card products offered with their logo on them. For example, they don’t determine the interest consumers are charges, credit card fees, rewards points, and other particulars of the card. These are determined by the banks and financial institutions offering these cards.

About Visa

Based in America, Visa Inc. (NYSE: V) facilitates electronic funds transfers throughout the world. This is most commonly achieved via Visa-branded credit, debit and prepaid cards.

Because Visa doesn’t provide the actual cards, they don’t make money on the interest and fees connected to their cards. Instead, they make the bulk of their profit from charging banks and financial institutions a fee for using their payment network.

About Mastercard

Mastercard Inc. (NYSE: MA) is also an American-based company. It is the second-largest payment network, behind Visa. The company’s primary source of revenue comes from the fees it charges.

As is the case with Visa, Mastercard makes the bulk of its money from charging its clients a fee to use its electronic payment network. The company doesn’t control the fees and interest associated with its cards.

What’s the situation in Australia?

Like most countries, Visa and Mastercard dominate the electronic payments market in Australia. According to Statista.com, in June 2020, the two companies were responsible for 84.7% of the value of all Australian credit card payments. Furthermore, over the past five years, they have continued to increase their market share. 

visa and mastercard market share

Credit cards in Australia

Although Visa and Mastercard dominate the electronic payments market in Australia, what does that market actually look like? According to Finder, there were 13,432,262 credit cards in circulation as of March 2021. Together, these cards netted a national debt accruing interest of $20.5 billion.

As for debit cards, for the same period, there were 35,279,958 in circulation. The average debit card purchase was $46, and on average, debit card users made 23 purchases per month.

What’s the difference between Visa and Mastercard?

So now you know what the two companies are and their presence in Australia, let’s get stuck into discovering what’s the difference between Visa and Mastercard.

The main difference between the two brands is the payment network that the company operates on. Visa and Mastercard both have their own separate payment networks. Visa cards won’t work on Mastercard’s payment network. The same goes for the other way around.

Aside from this main difference, there aren’t many other variations between the two payment networks, especially from a consumer’s perspective. Any other differences come from the specific card you have. 

Because both companies partner with a range of banks, not all Mastercard cards are the same, nor are all Visa cards the same. They vary depending on the card issuer. Therefore, you might find differences between the types of rewards offered, the interest rates of individual cards, and the specific terms and conditions. 

Alternatives to Visa and Mastercard

Even though Visa and Mastercard clearly lead the pack when it comes to electronic payments, there are two other large players in the market – American Express and Diners Club. Let’s jump in to see how these alternatives are different and what benefits they might offer.

American Express

Similar to Visa and Mastercard, American Express (commonly referred to as Amex) operates its own card network where it processes electronic payments. Unlike its two largest competitors, American Express doesn’t just process payments, it also issues credit and charge cards. Furthermore, American Express processes its own cards, as well as cards from other issuers on its card network.

What are the perks of American Express? Generally speaking, Amex offers better rewards than the other two companies. These range from frequent flyer points, membership rewards, dining perks and more. This is one of the main appeals of American Express cards.

The downsides of Amex is that they are known for charging higher credit card processing fees. Because of this, some merchants don’t accept American Express. Therefore, as a consumer, there are fewer places where you can use your Amex card.

Diners Club

Similar to American Express, Diners Club isn’t just a payment system, it also issues cards directly to the consumer. Furthermore, the company also finances payments and processes the transfers. Visa and Mastercard make most of their money from charging banks and financial institutions a fee for using their payment networks, Diners Club makes most of its money through the interest charged and fees.

What are the perks of a Diners club? Similar to Amex, the card offers different rewards than Visa and Mastercard. If these benefits align with your lifestyle, ie. If you travel a lot for work, then a Diners Club card could be beneficial for you.

The benefits include free airport lounge access, travel insurance and purchase protection, retail perks, and because the company has partnered with Mastercard to improve its accessibility, users can also access Mastercard perks. 

This means, unlike American Express, Diners Club is accepted everywhere that Mastercard is accepted. Nonetheless, like Amex, Diners Clubs cards generally charge higher interest rates, as this is one of their biggest sources of revenue.

The verdict: what’s the difference between Visa and Mastercard?

To sum it up, what’s the difference between Visa and Mastercard? Overall, there is very little difference between the two. They both serve an identical purpose, and both have a large coverage of the global payments network.

From a consumer’s perspective, there isn’t any notable difference. The real variance comes from the individual cards but those differences are dictated by the card issuer, ie. the bank, not Visa or Mastercard themselves.

Can You Buy a House Without a Credit Score?

buy a house without a credit score

Australia’s property market is hot right now, with lots of people flocking to the real estate market. But can you buy a house without a credit score? Tippla has provided you with everything you need to know below.

buy a house without a credit score

Buying a house in Australia

Many Australians are currently entering the property market, either to buy their first home, a new home or investment property. With household savings peaking during COVID-19, and the Australian Government providing a range of stimulus packages for the property market, many Aussies feel like now is the time to buy.

When you’re looking to buy a house, many people need to do so with the help of a mortgage – a loan that is provided by the bank or a similar financial institution. According to the Australia Bureau of Statistics (ABS), as of October 2020, the average mortgage in Australia was $453,133.

Unsurprisingly, residents of New South Wales on average have the largest mortgages on average. Following NSW is Victoria and then South Australia. 

Where can you apply for a mortgage?

You might be surprised to learn that it’s not just banks that offer home loans. In Australia, there are three main types of financial institutions where you can apply for a mortgage. The first of these three, is, of course, banks. 

However, you can also apply for a home loan with mutuals, otherwise known as “member-owned” lenders. These range from building societies, credit unions and member-owned banks.

Furthermore, you can also apply for mortgages with non-bank lenders, which are privately owned institutions. This type of lender is neither a bank nor mutuals, as they don’t hold a banking licence.

What do lenders consider when you apply for a mortgage?

When applying for a mortgage, financial institutions will take a number of factors into consideration. This includes your credit score, salary, length of employment, spending habits and more.

Here are some of the most common home loan requirements:

  1. Credit score (the higher the better);
  2. Deposit (at least 5%);
  3. A stable income;
  4. Personal ID, such as Driver’s Licence, Passport and similar documents;
  5. Stable financial position;
  6. Bank statements and payslips.

All of these factors and more give the institution you’re applying to a good overview of your financial situation. It allows them to judge how risky of a borrower you are, and make their decision accordingly.

Why do you need a credit score for buying a house?

Your credit score is a numerical representation of your creditworthiness, AKA, how reliable of a borrower you are. Typically, if you have a high credit score, then you are perceived to be less of a risk. Therefore, you’re more likely to be approved for finance.

Your credit score is based on your credit report. Your credit report provides an overview of your credit history. It allows lenders to see how responsible you have been with your debt.

Because of this, not having a credit score and credit report could be viewed as a red flag by lenders. It gives them one less measurement to determine how big of a risk you are. 

As a result, you might be charged a higher interest rate, which can cost you in the long run, or your application could be rejected. Having a good credit score could improve your chances of being approved for a mortgage.

How to buy a house without a credit score

Whilst having a credit score, especially a good credit score, can help your home loan application, you can still get a mortgage without a credit score. There are a number of things you can do to overcome this obstacle. 

However, it is worth pointing out that if you are applying for a mortgage without a credit score, you might have access to fewer loan options, only be offered loans with higher interest rates, and less desirable conditions. Furthermore, because of responsible lending standards, you might only be able to apply for a smaller loan amount.

Prove you’re in a strong financial position

One of the main focuses for lenders is checking whether potential borrowers are in a strong financial position. If you can prove that you’re in a strong financial position, then this could go a long way in helping your application.

So how can you do this? If you can show that you have a full-time stable job, a strong income, you can save money on a monthly basis, and show that you don’t have a history of dishonour fees and defaults, then these can all help your case.

Nonetheless, it is important to keep in mind that if you don’t have a credit score, then you’re starting at a disadvantage.

Here is a quick overview of some of the potential downsides of buying a house without a credit score:

  • Limited choices of lenders;
  • Higher interest rates;
  • Smaller borrowing limit;
  • Stricter loan terms and conditions.

How to build a credit history from scratch

If you’re thinking about buying a house but you don’t have a credit score, you could consider trying to build a credit history before applying for a mortgage. We’ve put together a few tips on how to build a credit history from scratch.

Open an Australian bank account

If you don’t already have your own bank account, then this could be a good place to start. Having a bank account could help you apply for credit later on. So whilst opening a bank account won’t immediately help you create a credit history, it is a good first step.

Bank accounts are also important when applying for finance. This allows lenders to see your spending habits and how you manage your money. If you are responsible with your spending, then this could go a long way for your application.

Add your name to your utilities

If you are living out of home and your name isn’t on your utility bills, it might be time to change that. Your utility bills are a form of credit. If your name is on the bill, then each payment you make on your bill goes towards building your credit score.

Apply for a credit card

One way you can build your credit history is by applying for a credit card. If you don’t have a credit history, your choices are more limited than if you did have a credit score. Nonetheless, there are options, as banks and financial institutions will take other factors into account.

If you are a tertiary student studying at either university, TAFE, VET or an apprenticeship, then you could be eligible for a student credit card without a credit history. However, it’s a good idea to compare your options beforehand.

If you’re not a student, there are still other options. You could, for instance, apply for a secured credit card. Similar to a secured personal loan, a secured credit card is when you have a cash deposit in your bank account that is the same amount as your credit limit. That way, it is guaranteed to be paid.

Proactively provide information to credit bureaus

If you don’t have any credit, then credit bureaus won’t have any information on you. One way you can overcome this is by reaching out to provide your information. This could be in the form of sending a document to prove your identity and address. However, it’s important to update your information when necessary – such as your address, so that you don’t end up with multiple files with different credit information.

Can I buy a house without a credit score?

To sum it all up, simply put, whilst you can buy a house without a credit score, it’s not necessarily your best option. If you don’t have a credit score, you might have access to fewer loan options. Not only that but the loans that you are offered might not be as good, as you are deemed a riskier borrower. This could mean higher interest rates, lower borrowing limit, and other fees.

Is Afterpay Bad For My Credit Score? Here’s a Quick Overview

is afterpay bad for my credit score

With Buy Now Pay Later (BNPL) platforms, especially Afterpay, becoming an increasingly popular payment option, we’re exploring the potential negative effects of Afterpay and answering the question “is Afterpay bad for my credit score?”. Find out the answer below. 

is afterpay bad for my credit score

What is Buy Now Pay Later?

As the name suggests, BNPL platforms allow customers to buy an item now and pay it off later, typically in fortnightly instalments. These type of platforms are useful for people who want to make a big purchase but they might not be able to afford the full amount upfront. It gives them the opportunity to space out the cost over multiple pay periods.

BNPL platforms are similar to the layby system used by many retail stores. However, the difference with BNPL platforms is that they generally pay the retailer for the goods upfront, so the customer can receive them instantly, and then the customer pays the BNPL platform back.

Some of the most common BNPL platforms are Afterpay, Klarna, Zip Co (Zip Pay and Zip Money), Splitit, Sezzle and more.

Buy Now Pay Later in Australia

BNPL platforms have really taken off in Australia, with Afterpay at the forefront of the movement. According to a recent report released by the Australian Securities and Investments Commission (ASIC), the total amount of credit extended under BNPL arrangements almost doubled from the 2017–18 financial year to the 2018–19 financial year.

Specifically, the November 2020 report outlined that as of June 2019, there were more than 6.1 million open BNPL accounts. This represents up to 30% of the Australian adult population.

Not only are a range of new competitors entering into the Australian landscape, but established licensed credit providers have started to offer a BNPL arrangement or alternative. This includes some of the largest banks in Australia – Commonwealth Bank of Australia, National Australia Bank (NAB) and Citigroup.

How does Buy Now Pay Later work?

Say you want a dress for $400, an example of using a BNPL platform is you’d only have to make an initial payment of $100, and over the next 6 weeks, each fortnight you would need to make another payment of $100 until the whole amount has been paid off. 

Many retailers now offer Afterpay, or similar BNPL platforms as a method of payment, as an alternative to paying with cash, debit or credit. Typically, all you need is an account via the app or website to make a transaction. This will be connected to a card or bank account, and the payments are commonly deducted automatically. You can also set up an account when you’re at the retailer, and once you’ve provided all your details, you will often get approval within seconds.

BNPL are similar to a loan, although they generally don’t come with interest, however, there can be fees associated with this kind of payment method, including late fees, overdraft fees from your bank, and interest if your account is connected to a credit card. 

What is Afterpay?

Afterpay is a company established here in Australia in 2015, which operates in Australia, Canada, the United Kingdom, the United States and New Zealand. It is one of the leading Buy Now Pay Later (BNPL) platforms, allowing shoppers to pay for items in instalments, instead of having to pay the full amount upfront.

What are the risks of Afterpay and BNPL?

Afterpay allows you to make interest-free instalment payments for your purchases. According to its website, you’ll only incur fees if your payments are late. Another perk of Afterpay is an “instant approval decision”, where you’re notified whether you’re approved within seconds. 

Whilst this all sounds great, are there risks associated with Afterpay? The simple answer is yes, so let’s take a closer look.

1. Afterpay can encourage impulse spending

Afterpay can be a great tool that allows customers to make larger purchases and break down the payments into more affordable instalments. However, one of the downsides of Afterpay and similar BNPL platforms, is that it can encourage impulse spending.

In fact, BNPL arrangements can actually make us spend more. Mel Browne, Author and Financial Wellness Advocate outlined the dangers of using Afterpay and similar services. As she outlined, the process of using cash causes the insular cortex of our brain to light up and it registers as pain. Credit cards and BNPL services don’t have this same effect, so we’re more likely to spend more.

Specifically, Browne argues that although there are dangers with credit cards, the risks are even greater with BNPL. She explains it like this: say you make a purchase of $100. This will be spread over 4 payments of $25. Your brain is likely to process this as only $25 – not $100. 

Therefore, your brain registers less pain, and you’ll likely end up spending more. This could then lead to you overspending and struggling to make your repayments.

2. Late payment fees

Whilst Afterpay doesn’t charge interest, there are late fees, which can end up costing you. As highlighted above, because of the psychology behind BNPL, you’re more likely to overspend and struggle to make your repayments. Therefore, there is a real risk of incurring late fees.

This was highlighted in ASIC’s report, which showed that 21% of BNPL users who were surveyed missed a payment in the last 12 months. For the 2018-2019, financial year missed payment fee revenue for the BNPL providers in the review exceeded $43 million. This was up by 38% from the previous year.

“One in five consumers surveyed told us that in the last 12 months they had missed or were late paying other bills in order to make their buy now pay later payments on time,” ASIC said in its report. “These consumers missed paying things such as household bills (44%), credit card payments (32%), and home mortgage payments (22%).”

3. You can’t choose your payment schedule

Another downside of Afterpay and other BNPL platforms is that you typically can’t choose when your payments come out. This can increase your risk of overdraft, and incurring late fees from your bank.

4. It can harm your chances of being accepted for a loan

Lending requirements have become a lot more strict in recent years in Australia. Because of this, anecdotes have surfaced of people being rejected for home loans and other types of finance because they had Afterpay or they spent too much money on Uber Eats.

When it comes to Afterpay, lenders still look at this as a line of credit, because you’re borrowing money that you don’t have. If you rely on Afterpay for a lot of expenses, then this indicates to lenders that you’re not responsible with your finances. 

Even if you don’t rely on Afterpay that much, lenders will still take a look at your BNPL spending habits, along with your other debts, to deem how risky of a borrower you are.

How does Afterpay affect my credit score?

Let’s get stuck into the next question – does Afterpay affect your credit score? Here’s what Afterpay has to say about it:

“Afterpay does not affect your credit score or credit rating. Your credit score can be impacted when somebody does a credit check on you or if you are reported as paying debts late; at Afterpay, we never do credit checks or report late payments.”

However, it is worth highlighting, that Afterpay’s Terms & Conditions do give it the authority to perform credit checks and also allow it to report “any negative activity on your Afterpay Account (including late payments, missed payments, defaults or chargebacks) to credit reporting agencies”.

So what does this mean? Basically, Afterpay doesn’t typically report your late payments or perform credit checks, but that doesn’t mean it won’t. That’s something to keep in mind when considering whether to start using Afterpay.

Other BNPL platforms, like Klarana, do perform a credit check when you use its services. Other platforms, like Zip, humm, Openpay and Payright all say they might perform a credit check, or that they reserve the right to perform a credit check, depending on the platform.