Humm and Your Credit Score | What You Need to Know

Humm is one of the most popular Buy Now Pay Later brands in Australia behind Afterpay and ZIp and offers a variety of interest-free ways to make purchases.

Buy Now Pay Later services can be a great way to spread the costs of buying items out over a few weeks and months but there are also risks in using them. It is possible to negatively impact your credit score and your ability to borrow in the future so it makes sense to plan in advance how to use these products responsibly.

Humm could affect your credit score in three ways:

First, Humm performs a credit check when you apply for larger purchases (no credit check for smaller purchases less than $2,000). A credit check leaves an enquiry on your credit record. The impact of this can be to lower to your credit score, especially if you have applied for multiple credit products recently. It is unlikely that this would be a significant drop and your credit score is likely to recover within months.

My personal experience is that I’ve seen my credit score drop 20-30 points if I apply for a few credit products in a short space of time. This is not enough to damage my ability to access credit in most circumstances. However, it is important to be aware that if your credit score drops below certain threshold scores e.g. 700 – and these vary by lender – you might no longer see their offers.

Second, if you begin to miss payments or even default on purchases that you have made with Humm you could see a much more severe drop in your credit score. There’s also a related risk that if you spend too much on Buy Now Pay Later; you might struggle to keep up on other payments. This is a much bigger problem. Defaulting on a loan could mean a drop in your credit score of several hundred points and massively reduce the available credit cards and loans for you. Even missed payments can cause a significant drop in your score temporarily but can recover much more quickly.

Finally, the positive news is that having some evidence of credit activity can be a positive influence on your credit score. Showing you can take out credit and manage it well is better than never taking out credit from a credit score perspective. It shows that you are responsible in managing your finances. This might help you in the future get a bigger loan for a car, a holiday or a new home.

Humm is a Buy Now Pay Later product with two distinct versions. The more classic variant is what they call the ‘Little things’ product. This is used for purchases less than $2,000 and gives you the option to pay back in 5 fortnightly instalments or 10 fortnightly instalments with a monthly fee. According to Humm’s 2021 Annual Report, the average customer makes 5 transactions per year on this product.

Humm also has a ‘Big things’ product that is more like a regular form of credit like a loan or line of credit. It is for larger purchases up to $30,000, typically once per year, with a payback period ranging from 6 months to 5 years.

You can use Humm at check out when you buy things online. Humm is accepted at a range of major retailers (see below). There is no interest payable on the ‘Little things’ or ‘Big things’ products.

Humm also comes with an App where you can also add a Humm card that can be added to your Apple wallet or Google Pay so that you can shop using contactless at stores like Bing Lee and Bonds.

The Humm app also comes with offers to encourage you to engage more frequently and spend more.

There are fees associated with Humm – currently a $8 monthly account fee for all ‘Big things’ purchases and for the ‘Little things’ purchases when you choose to pay back over 10 fortnights. For ‘Big things’, there is also an establishment fee of $35-90 for larger purchases, although this drops to $22 if you are a repeat customer.

Humm is a Buy Now Pay Later product like Afterpay and others in that it enables you to make a purchase, at Bing Lee for example, and pay back this purchase over time. This is great benefit if you do not have enough money at the time to cover the whole purchase.

In their 2021 Annual Report Humm says their mission is to “revolutionise the way people pay, empowering customers to choose how they wish to pay, with terms from 5 fortnights to 5 years”. Although it is hard for most consumers to understand how this is different from other Buy Now Pay Later services or credit cards, the truth is that Humm and others are making it easier for many people to get access to credit. Many people desperately need credit because of loss of employment, sickness or other emergency. Buy Now Pay Later and similar products such as credit cards provide a critical service to these people who may need to repair a car, replace a broken appliance or pay medical bills.

Whereas Afterpay is known for a model based around 4 equal payments spread 2 weeks apart, Humm ‘Little things’ comes with the flexibility to pay back fortnightly over 5 or 10 fortnights.

Although paying back in 5 fortnights incurs no fees, you can be charged $6 if you don’t make payments on time.

If you choose to pay back in 10 fortnights you will be charged a monthly fee of $8. The $8 monthly fee is quite low to borrow money in absolute terms. But it could work out to relatively expensive when considered as a percentage of what you borrow. If you decided to purchase something for $200 the $8 monthly fee would be equivalent to an interest rate of around 4% per month which is more than double what you would pay on most credit cards. As the fee is fixed the good news is that this is capped if you have a higher balance.

The Big things product is slightly more complicated as it also involves establishment fees of $35-90 so the cost of borrowing is really a function of how many months you borrow for and what is the establishment fee.

For example, if you borrowed $3000 on Big Things over 3 years you would incur $96 in account fees each year and an establishment fee of $35-90. Over the three years the cost of credit would only be about 4% each year, which is a great deal. Although the retailer pays Humm typically 3-4% for this transaction, it is really hard to see how Humm makes much money on these transactions.

In addition to flexible payments, Humm has a range of methods to pay. You can add an electronic card through the Humm app and add it to your Apple wallet or Google Pay account. You can use this to make contactless payments in most of the stores where Humm is accepted.

Humm is not always free. Humm is interest free like some credit cards that only charge a monthly fee or all credit cards that are interest free if you pay back your balance in full at your due date.

Humm charges you a range of fees from the $8 monthly fee to establishment fees and late fees. They also makes significant money from charging retailers when you use Humm to check out, but this comes at zero cost to you.

You avoid paying any fees if you shop for only ‘Little things’ and pay back on time in 5 fortnights.

Humm is accepted by a lot of the major Australian retailers and claims that it is accepted in more than 20,000 stores in Australia. A full list can be found here.

Some of the major ones include:

• Bing Lee
• Bonds
• Myer
• Cotton On
• Ikea
• Michael Hill
• Kogan
• Redballoon
• Temple and Webster
• Beds R Us
• Bras n Things
• Just Jeans
• Ginger & Smart

Humm does do a credit check for its ‘Big things’ product which is for purchases greater than $2,000. This will leave an enquiry on your credit report.

Humm does not do a credit check for its ‘Little things’ product for purchases under $2,000. This makes the process of signing up to Humm very efficient.

Australia now operates a Comprehensive Credit Reporting system which means that your payment history can also be tracked by credit bureau such as Equifax, Experian and Illion. It is important to make payments on time.

In Humm’s FAQs, it says “Like with any form of credit, failing to meet your repayment obligations as set out in the humm T&Cs could affect your credit rating and affect your ability to be approved for future loans where the application involves a credit check.”

At ClearScore, we allow you to check your credit score and report for free and help you monitor and improve your score. Sign up for your free credit score.

Using Humm can improve your credit score.

Credit bureau like Experian, Equifax and Illion create credit scores to summarise how well you have managed credit in the past. A high score means you have managed credit well.

If you borrow money from credit bureau and manage it well by making payments on time, you are demonstrating you can responsibly manage credit. This can improve your score over time.

More details on credit bureau and how scores are calculated can be found here.

Many Buy Now Pay Later companies make a big deal about how they are disrupting the traditional world of credit cards.

In practical terms the products are not much different. For example, both credit cards and Humm both allow you to:

• Buy something today but pay it back later
• Have interest free periods if you pay your balance on time
• Can be used at a variety of stores
• Will negatively impact your credit score if you don’t pay on time

The cost of credit is not as different as is made out and depends on how you use the product. It’s important to know how you are being charged and for what. Humm claims to be ‘interest free’ but so is a credit card if you pay in full. It’s worth considering the total cost of credit including regular monthly fees and interest charges.

The interest rate on a credit card might be between 1 and 1.5% per month. So if you have a balance of $200 you pay between $2 and $3 in interest charges per month. If you use Humm and have an outstanding balance of $200 you would pay $8 in monthly fees. In this case Humm is rather more expensive than a credit card! It all depends on how much you borrow and how long you borrow for. If you borrowed $1000 you would pay $10-15 in interest on a card but still only $8 on Humm. Both credit cards and Buy Now Pay Later are very flexible and reasonably priced forms of credit if you use them and pay down your balances in a few weeks or months.

The major benefit of credit cards is that they are much more flexible than Humm because Humm can only be used at a limited number of retailers that have a relationship with Humm. Because of this in our recent study, we found 93% of Humm users had more than one Buy Now Pay Later account to be able to buy now and pay later in other stores.

Humm is becoming more like a credit card over time with the introduction of products as the electronic card that can be used through the app. It also offers a range of cards such as Humm 90 and Bundll that are accepted everywhere through the Mastercard network.

The big benefit of Humm though is that the Little things Buy Now Pay Later product is not regulated like a credit card. This means it does not have the same strict requirements on responsible lending. In practical terms this means that you are much more likely to be approved for Humm than a credit card as Humm does not conduct a credit check.

There are lots of alternatives to Humm. Humm itself has a Humm Money product for higher credit limits. There are also many other Buy Now Pay Later companies. The major ones in Australia in order of size are

• Afterpay
• Zip
• Openpay
• Latitude Pay

See them in more detail below.