How the purchase of a $500 dress using Afterpay almost cost a young woman her dream house - as she issues a stern warning to buy-now-pay-later shoppers during the Christmas retail frenzy

A shopper says using buy-now-pay-later services nearly cost her dream home after the purchasing scheme ruined her credit rating.  

Leanne, 33, a regional sales leader from Melbourne, signed up to Zip Pay to buy a $500 dress from Camilla for her sister's wedding in mid-2016.  

After finding the service handy, she later started using After Pay as well as an alternative payment option to help take the edge off bigger expenses. 

But when she went to apply for a home loan in July this year, her mortgage broker said using the seemingly harmless services had plummeted her credit rating.  

'My fiancé and I are pretty good savers, we have always been financially savvy when it comes to money. When I saw the dress I thought I'd sign up to Zip Pay to help space out the amount I needed to spend,' Leanne told Daily Mail Australia.  

Leanne , 33, a Regional Sales Leader from Melbourne, claims she was almost knocked back from a home loan after using buy-now-pay-later services

'I always repaid the amounts back in full and never was in arrears.  

'When he said my credit rating was on the low side, I was so confused because it had always been pretty good.'  

Leanne's fiancé credit rating had also taken a hit from using Afterpay, but the combination of having both buy now pay later services on her record was the perfect storm for having a red mark against her name. 

After changing mortgage brokers, they were able to secure a single bank willing to lend them the money to buy their first home.  

Each time a person applies for credit, a credit provider will make an enquiry into their file before it is granted, with each enquiry made tallied on their credit record.

Credit enquiries can be considered 'good debt' or 'bad debt' depending on what type of loan is being sought. 

When Leanne set up the services, Afterpay and Zip Pay made enquiries into her file which were scored as 'bad debt', subsequently lowering her credit rating. 

When Leanne went to apply for a home loan in July, she was told using Afterpay and Zip Pay had impacted her credit rating

'There were initially a lot of tears when I wasn’t approved after finding a home we loved. If I had known signing up with Zip Pay and Afterpay would have created this nightmare for me I would never have bothered,' she said. 

'The mortgage broker said "if you are using buy-now-pay-later programs, you are saying you can’t afford something outright, which is telling the bank you have financial issues".'

'It implies that you are putting yourself in debt on a regular basis, which means you cannot afford to have a loan.'

Leanne said she was notified of the implications at the time of sign-up, and does not recall reading about it in the terms and conditions. 

This scenario is becoming all too familiar with credit expert Victoria Coster, founder of Credit Fix Solutions who fixes Australian’s credit reports for a living. 

'Unfortunately, Leanne isn’t the only one who is out there having an affected credit rating from simply just signing up to buy now pay later services' Ms Coster told Daily Mail Australia.

'2020 has seen a rise in the number of consumers applying for credit repair, who need to remove ‘buy now pay later’ enquiries. 

Victoria Coster , founder of Credit Fix Solutions, said there has been a rise this year in the number of consumers applying for credit repair who have buy-now-pay later enquires on their credit record

'Consumers are being knocked back by the major banks and mainstream Lenders due to having just one or two of these types of enquiries.'

With COVID-19 bringing about a tightening in lending restrictions, just one ‘buy now pay later’ enquiry can prevent a consumer from obtaining home loans, car loans, personal loans, or credit cards.

'A home loan enquiry is not seen as risky as it is potentially a ‘good debt’, but the credit reporting bureaus deem ‘buy now pay later’ enquiries as a ‘bad debt’, and therefore high risk, indicating that the consumer has a pattern of bad money management, which negatively impacts their credit score' Ms Coster said. 

'When a consumer then tries to apply for a home loan, personal loan, or car loan, for example, they are often knocked back for the ‘top deals’ due to risky behaviour, indicated by high-risk enquiries on their credit reports, especially ‘Buy Now Pay Later’ enquiries'.'

After being devastated to find out that she couldn’t be approved initially for a home loan, Leanne's mortgage broker recommended she speak with Victoria to help her fix her credit report.  

Ms Coster said debts are weighed as either 'good' or 'bad', with 'bad debt' enquiries resulting in a lower credit rating

Victoria and her team offer a no fix no fee solution and managed to remove the listings on her report. 

Zip Co Director of Corporate Affairs Matthew Abbott said he could not comment on specific cases but making credit enquiries was a vital company measure.

'Zip is a responsible lender and that means we do credit checks on every single applicant,' he said. 

'But we don’t control how an actual credit score is calculated. The credit bureaus use many data points and a proprietary algorithm to calculate these scores – and this is something on which Zip has no visibility.'

Zip Co failed to answer questions on what measures are currently in place to notify customers about the potential credit score implications at the time of signing up.

Daily Mail Australia has contacted Afterpay for comment. 

Buy Now, Pay Later programs allow shoppers to make purchases in-store and online and receive the product without paying the full price upfront, enabling items to be taken home while they are paid off in instalments. 

While the purchase cost is interest-free, there are other fees associated with using the services.  

VICTORIA COSTER'S TIPS ON WHAT YOU CAN DO TO STOP DAMAGING YOUR CREDIT REPORT

 ● In all instances ‘prevention is better than cure’ when it comes to protecting our credit reports. 

Consumers should be aware that every time they enquire for a loan, a mobile phone or energy plan, that the credit provider is going to place an enquiry on their report. 

The question that people need to ask themselves before applying is ‘Do I really need to buy this?’. Especially if the purchase is for a want instead of a need.

● Don’t enrol in buy now pay later services or if you have them cancel them immediately. 

'We have had clients come to us with ''buy now pay later'' enquiries for small purchases of just a few hundred dollars,' Ms Coster said. 

● Save up first and then buy these small 'want' items outright with cash to proactively protect your credit reports. 

'Signing up to any buy now pay later company says to the lenders that you don’t have enough money to live your lifestyle and therefore this becomes a red flag for them when it comes to applying for a personal loan or home loan,' she said. 

● If you feel that you have unfair enquiries or information on your credit report, you can lodge a formal complaint to the credit provider, and they will investigate this for you. Usually replying in around 30 to 45 days.