You’ve probably seen Klarna as a payment option while shopping online. Klarna’s buy now, pay later service is convenient, but how does it impact your credit score? Let’s break down how Klarna can affect your credit report and score.

How Klarna Works

Klarna offers multiple ways to pay, each affecting your credit differently. Knowing how these options work is key to managing your credit.

Klarna Payment Options

Klarna provides several payment methods: pay now, pay later, and financing. Klarna’s financing option is a regulated credit product. Using Klarna’s financing option requires signing a regulated credit agreement. Pay now doesn’t impact your credit score, but pay later and financing might.

Initial Eligibility Checks

When you sign up, Klarna performs soft credit checks. These checks don’t affect your credit score and are used to determine your eligibility for their services.

Hard Credit Checks

For higher value purchases or financing options, Klarna may perform a hard credit check when you request a higher credit limit. This can impact your credit score, similar to applying for a credit card or loan.

Impact on Credit Scores

Your payment history with Klarna can affect your credit score. Let’s see how.

Positive Impact

Making your Klarna payments on time can build a positive credit history, demonstrating reliability to other lenders.

Negative Impact

Missed payments and unpaid balances when you borrow money using Klarna can negatively impact your credit score. Failing to pay off the outstanding balance on time can lead to negative consequences. Klarna may report these to credit reference agencies, lowering your score and affecting future credit applications.

Reporting to Credit Reference Agencies

Klarna reports to major credit reference agencies like Experian and TransUnion, including details of unpaid purchases. Unpaid purchases can negatively impact your credit score, leading to late fees, involvement of debt collection agencies, and long-term negative effects on your credit report. This means your payment behaviour is reflected in your credit file.

The Role of Credit Agencies

Credit agencies collect and maintain information about your credit history. Your activity with Klarna, whether positive or negative, is part of this record.

How Klarna can affect applying for a Mortgage

If you’re planning to apply for a mortgage, it’s important to consider how Klarna affects your credit score. Missed payments can lead to a default or County Court Judgment under the Consumer Credit Act, which can stay on your credit report for six years. Mortgage lenders review your credit history closely. A record of missed payments or heavy reliance on BNPL services might raise concerns.

Tips for Using Klarna Responsibly

To use Klarna without harming your credit, follow these tips:

• Understand the terms of your credit agreement.
• Always make payments on time.
• Avoid taking on more credit than you can manage.
• Regularly check your credit report for accuracy.

Conclusion

So, does Klarna affect your credit score? Yes, it can both positively and negatively. By understanding how Klarna works and using it responsibly, you can maintain a healthy credit score while enjoying the flexibility Klarna offers.

FAQs

Does Klarna affect your credit score?

Yes, Klarna can affect your credit score. Soft credit checks performed during initial eligibility checks do not impact your credit score. However, hard credit checks for higher value purchases or financing options can temporarily lower your score.

What is a soft credit check and does it impact my credit score?

A soft credit check is a type of credit inquiry that doesn’t impact your credit score. Klarna uses soft checks to determine your eligibility for their services without affecting your score.

How do hard credit checks from Klarna affect my credit score?

Hard credit checks can lower your credit score temporarily. Klarna performs these checks for higher value purchases and financing options, similar to applying for a credit card or loan.

Does Klarna report to credit reference agencies?

Yes, since June 2022, Klarna has been reporting payment information to credit bureaus like Experian and TransUnion. This means your payment history with Klarna is reflected in your credit report.

Can using Klarna improve my credit score?

Yes, using Klarna responsibly can help build a positive credit history. Making timely payments shows lenders that you can manage credit effectively, which can improve your credit score over time.

How do missed payments with Klarna affect my credit score?

Missed payments can negatively impact your credit score. Klarna reports late and missed payments to credit bureaus, which can lower your score and make it harder to get credit in the future.

What happens if I miss a payment with Klarna?

If you miss a payment, Klarna may charge late fees and report the missed payment to credit reference agencies. This can harm your credit score and potentially lead to your debt being handed over to a debt collection agency.

Does using Klarna affect my ability to get a mortgage?

Yes, using Klarna can affect your mortgage application. Mortgage lenders review your credit history closely. Multiple BNPL purchases or missed payments with Klarna can raise concerns and impact your eligibility for a mortgage.

How can I check my credit score?

You can check your credit score through major credit bureaus like Experian, Equifax, and TransUnion. Regularly monitoring your credit report helps ensure all information is accurate and up-to-date.

What are the best practices for using Klarna without harming my credit score?

To use Klarna responsibly, understand the terms of your credit agreement, always make your payments on time, avoid taking on more credit than you can manage, and regularly check your credit report for accuracy.