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Can PayPal hurt your credit?

It's worth reading the terms of service to find out what PayPal does with your credit information -- particularly if you want to protect your credit scores.

By Nov 25, 2013 8:57AM

This post comes from Gerri Detweiler at partner site logoIf you are one of the millions of people who use PayPal to send or receive money, you may not have given to much thought about how it might affect your credit. But if you read the terms of service, you’ll see credit reports and credit scores mentioned, and that may leave you wondering how that will impact you. If you care about your credit scores, you should know what PayPal does with credit information.

Image: Woman surprised (© Purestock/SuperStock)Here’s how this service works: When you sign up, you can link your credit, debit and/or bank accounts to your PayPal account. When you buy an item online (and, more recently, in some retail stores as well) you can check out with your PayPal account, which will then process the purchase through your preferred payment method.

In addition, PayPal offers an option where you can pay for an item via PayPal using your credit or debit card, even if you haven’t set up an account.

More than 137 million consumers around the world have PayPal accounts, and the service processes some 8 million payments every day, according to the company. PayPal can be handy for those who do not have a credit or debit card and want to shop online, or for those who feel safer paying for items online without exposing their card information directly to the merchant. In fact, for those who lack credit or debit cards, it may be one of the few ways to shop online. And some merchants only accept payment via PayPal.

There are two places in PayPal’s terms of service where credit is mentioned.

A credit check?

The first is through credit report inquiries. According to the PayPal terms of service, your credit report may be reviewed in the following situations:

Credit report authorization. If you open a Premier or Business Account, you are providing PayPal with written instructions and authorization in accordance with the Fair Credit Reporting Act to obtain your personal and/or business credit report from a credit bureau. You are also authorizing PayPal to obtain your personal and/or business credit report: (a) when you upgrade your Personal Account to a Premier or Business Account, (b) when you request certain new products, such as the PayPal Debit Card, or (c) at any time PayPal reasonably believes there may be an increased level of risk associated with your Premier or Business Account.

When a company checks your credit reports, it creates an “inquiry” on the credit report that was used for the review. This inquiry can lower your credit scores, though it will probably only result in a loss of a few points. The impact of a single inquiry should not be significant. You can see how inquiries impact your score with's Credit Report Card, a free tool that gives monthly credit score updates.

When we asked the company how often this happens, we were told by email that "we pull credit for Pro/VT/Advanced applications -- personal, blended or business credit -- as part of our vetting process." These three types of accounts are associated with businesses that want to accept credit cards, not individuals. Furthermore, PayPal representatives explained that these credit checks usually take place in situations involving larger transactions. Specifically they said, "PayPal will check the credit of users applying for Premier or Business accounts under certain circumstances, such as the individual requesting to accept transactions in excess of $10,000/transaction. A larger business would most likely have the company's credit checked, rather than the individual's."

So, good news there. It sounds like the individual user, or even most small businesses, are not likely to see an inquiry from PayPal on their credit report.

When credit is checked, PayPal says that reports from all three credit reporting agencies are used, and "FICO or business credit score is used to determine tier."

Bad credit = no PayPal?

However, if you continue reading the terms of service, you’ll run into what appears to be an even more alarming clause:

9.1 Restricted Activities. In connection with your use of our website, your Account, the PayPal Services, or in the course of your interactions with PayPal, other Users, or third parties, you will not:

Have a credit score from a credit reporting agency that indicates a high level of risk associated with your use of the PayPal Services;

Does this mean your PayPal account could be denied -- or terminated -- because of bad credit? While there are anecdotal reports online of PayPal closing accounts due to poor credit scores -- and leaving those customers in the lurch while they waited for the funds in their accounts to be unfrozen -- these appear to have happened a few years ago. When we asked PayPal whether consumers’ accounts could be closed due to poor credit scores, they said no: "PayPal will not close user accounts solely based on a poor credit score."

Another way a PayPal account could potentially affect your credit is through bad debt.

This issue appears to sometimes come into play when there is a dispute over something a seller has sold -- either on eBay (which owns PayPal) or online -- and payment was received via PayPal.

So, for example, let’s say you sell your cellphone on eBay and receive $100 from the buyer via PayPal. Then let’s say you turn around and quickly spend that money on another electronic item.


If your buyer later disputes the purchase, PayPal often refunds the buyer and tries to get the money back from you -- the seller. But if the money has already been spent, and there is no backup form of payment available (such as a linked bank account), then that amount may be considered a bad debt. If that debt is turned over to collections, it potentially could  appear on your credit reports as a collection account, and lower your scores.

But here’s the good news: PayPal told us that they do not allow their agency partners to report to credit reporting agencies.

A word of caution: There are some scammers who try to collect fake debts that supposedly come from PayPal accounts. Just because you have been contacted by a collection agency about one of these debts, it does not mean you actually owe anything. Verify it before you pay it.

Other services

It’s also worth noting that when you check out using PayPal, you’ll be offered the opportunity to pay for your purchase using a service called “Bill Me Later,” which lets you pay for that item later. This service features a line of credit, and your credit report will be reviewed if you apply for one of these accounts. Bill Me Later is clear about how credit reports will be reviewed for this service:

A credit report is reviewed when you apply for a Bill Me Later account and occasionally when you ask for an increase in your credit line. Periodically, updates of your report are obtained, but these updates have no impact on your credit score. Your account is reviewed quarterly. If for any reason your credit line is reduced, you will be notified of the reason in writing.

Bill Me Later may affect your credit scores as a result of the inquiries that are reported as well as through the account that will be reported on your credit reports. The impact can be positive or negative, depending on whether you pay late or carry large amounts of debt.

More from

Nov 25, 2013 9:57AM
It should be illegal for checking a Credit Score, to lower that score. That's insane. The Money Changers are doing everything in their power to destroy the working poor and fading Middle-Class.
Nov 26, 2013 4:41AM
credit score just a way to rip you offffff.very crooked operation save your money buy cash as much as possible.break them bitches...........................
Nov 25, 2013 10:32PM
i have one BETTER than that. If YOU have a dispute with an unscrupulous eBayer, they will TAKE the money out of YOUR PayPal account and GIVE it to the crook.YOU have NO SAY SO. To complain you will get a smart alec punk on the phone, to no avail. It should be against the law to TAKE/DEBIT funds without ones' permission, period. The BBB won't help in San Jose, eBay funds their "reputable" business.
Nov 26, 2013 1:51AM
I've been with PayPal since 2008 and have their debit card too and I have never had my credit dinged by them or had any of the problems others a claiming to have had.  Over those 5 years I have only had to claim twice (once for an unauthorized charge, and once when an Ebay item never arrived) and both times I found them helpful albeit a little slow to refund.

All in all I would happily recommend them as I'm more than happy with the service I've received.

Nov 26, 2013 5:13AM
Taxpayer, why are you automatically assuming that because of a Credit Check, that person intends on borrowing MONEY or the Credit Check was even for that purpose? Fact of the matter is this, the Mere ACT of checking credit can lower a person's score. That's whether or NOT they borrow a dime. Clearly you can't figure out a basic concept. And yes, that should be illegal. If the Bank does not want to lend, fine. A person's credit score should not be dinged just because of the mere act of checking a person's credit for anything from borrowing to now, almost anything else. That's crazy and should be illegal.

Now to the other part of my post, the Money Changers. You say they are taking all the Risks, then why, "Too Big to Fail, Too Big to Jail and Global Feds printing to Infinity to keep those Banks you so love, Solvent? Between Japan and the United States alone, we, aka Taxpayers here and there are footing the current and Future Bills and liabilities for $2Trillion per year in Fed printing to make sure Big Banks don't fail due to their Failures, not ours. So it's only Fine and Dandy when Banks screw up. Everyone should be held accountable for failure, not just the working poor and fading Middle-Class.

Nov 26, 2013 12:29PM
Pay Pal called me about my account with them a few weeks ago.  Seems they needed more cash or something for a purchase..... Was on the phone for 45 minutes getting more and more angry explaining to the person on the other end that I had never dealt with Pay Pal, and asking to either talk to a supervisor or have her tell me exactly what information they had about me.  They never let me talk to a supervisor (who the girl said was sitting next to her, but busy), and she refused to give me what information she was looking at, and denied what she continued to ask me for.  It was crazy.  I emailed and called the company the next day and never got a response, except for being put on hold.  Had to cancel my bank cards, and have my bank rep check all my accounts anywhere and everywhere.  They finally found where it was coming from... all Pay Pal.  Now Ive got a lawyer... who keeps being put off by them.
Nov 25, 2013 11:06PM
Credit scoring is nothing more than soaking the poor for more money. In Michigan, Auto insurance is linked to credit scores. One can have a perfect driving record, but, may have fallen behind on bills, or declared bankruptcy. They are gouged on auto insurance, thanks to our GOP run state house. 
Nov 26, 2013 10:25AM
NEVER, EVER USE paypal!!!  I had a buyer on ebay dispute an item (chinese scam) they bought from me so f*** PayPal  refunded the buyer and tried for 10 years to get the money back from me.  Harrasing and threating phone call after phone call for years!   They paid the buyer, who had no basis, 230 dollars and tried the get the money from my account but I changed accounts considering their was no due process.   No they call and the bill is 850 dollars for no reason.  They will lock your money up for no reason also.
Nov 26, 2013 9:25AM
I agree with most of the comments..PayPal only listens to themselves and only hires people who can't speak English or live in the Philippines..Here is one solution to protecting the seller..Do not sign up for up for their Credit Cards / Debit Cards ... (one less avenue for them to attack your money or credit)..Once you receive your money..transfer it to another account not available to PayPal..e.g.I have 2 bank accounts with the same bank..One linked to PayPal..the other not..when there is a dispute..I ride out the storm until it is resolved...BUT I have my money to use while the process works it's self out.. 
Nov 26, 2013 9:12AM

This is a financial scam.  Financial institutions can cause your credit score to go down and then charge you a higher interest rate.  Its hard to beat the greedy banks if your credit is less than perfect. 

Nov 26, 2013 1:43AM
From what I am hearing, Stay away from  PayPal.
Nov 26, 2013 12:56AM
Over the years I have had Paypal scam me for an illegal $7,500 withdrawal from my bank account (it took two years of legal action to get ALL my money back), defend me vigorously regarding an illicit charge back, take me to the cleaners when I was scammed by a Chinese dude, and otherwise prove to be totally  helpful, or totally unhelpful, depending on what agent I got and the mood of his or her supervisor.  Paypal is fully inconsistent and never to be trusted based on prior experience.   Use Paypal ONLY when transacting with a person or business you know well and trust.  Otherwise, you are guaranteed to eventually be screwed without a kiss.  
Nov 26, 2013 12:11AM
PayPal has a system that claims to protect you, but in reality the system is set up to protect PayPal.  For example, if someone paid you can then filed a charge back after you shipped the item, they sometimes will not defend you, but merely take money out of your account.  Reverse the situation where you pay someone for something, that something never arrives.  You file a complaint and wins, PayPal will ATTEMPT to recover the money, but if they can not get anything or only a partial amount, that's all you will get.  PayPal has also randomly locked people's account and all their money on deposit.  You will not have access to your money for months...
Nov 26, 2013 12:37PM
Nov 26, 2013 9:19AM
i have used ebay/paypal for years with excellent service. it is not free of course, but have contacted them several times with a payment or item problem and they always resolved the issue. I have hundreds of transactions both buying and selling with never a problem.
Nov 26, 2013 1:25AM
I doubt it can hurt me any, I cancelled it years ago
Nov 26, 2013 3:06PM
when you sell something on various web-sites  pay pal now holds your money for up to 21 days. guess they are making plenty off all the customers they have in 21 days. If you accept a pay pal payment and the payee used a credit card( pay pal doe's not tell you in what form the monies come from), you are on the hook to pay pal when the person decides for whatever reason to do a charge back on the card. we took a pay pal deposit on a car listing on eBay from a deadbeat that never completed said purchase. pay pal told us all about how they had our backs, then said sorry the final decision resided with the credit card company. take the time to read their policies that you agree to(which are constantly being changed), and you will see that they are not liable for anything under the sun. if you feel comfortable with pay pal having unfettered access to your bank account and financial assets then by all means use the crap out of them. we went the way of many others we know that had bad experiences with pay pal owning the rights to their souls and dropped pay pal like a hot rock. 
Nov 26, 2013 6:57PM
Don't give Paypal your Social Security Number. Check out paypalwarning.con on the internet. Paypal is crooked! period
Nov 26, 2013 6:40PM
I have good credit but Pay Pal rejects me anyway.  Somehow, I think they have done me a favor.
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