So, you've fallen head-over-heels for that new outfit online, but your bank account is looking a bit shaky. Enter Klarna, the magical "Buy Now, Pay Later" (BNPL) service promising instant gratification with a future paycheque. Before you click "buy" and get swept away in a retail therapy frenzy, let's delve into how Klarna works and if it can affect your score.
The impact of Klarna on your credit score
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How does Klarna work?
Klarna lets you split your purchase into smaller installments, typically spread over a few weeks or months. It can be appealing for those who want to avoid high credit card interest rates or don't have the full amount upfront. Think of it as a short-term loan for your latest must-have gadget or those trendy shoes you absolutely need.
Does Klarna do a credit check?
The answer depends on the Klarna option you choose:
| Payment option | Credit check | Does the check affect your score? |
| Pay in 30 days | Soft | No |
| Pay in three | Soft | No |
| Financing | Hard | Yes, hard checks can temporarily leave a mark on your report and reduce your score. |
Does Klarna report to credit agencies?
Since June 2022, Klarna has been reporting payment information to Experian and TransUnion. This means your Klarna payment history, including on-time payments and missed payments, will be visible on your credit history if you’re checking via Experian or TransUnion.
The impact of Klarna on your credit score
Although Klarna now reports payment data to Experian and TransUnion, the complete effects of borrowing through Klarna and similar BNPL platforms remain uncertain. As a precaution, we recommend borrowing only what you can comfortably afford to repay.
Late payments will undoubtedly have a detrimental effect on your credit score, as missed payments and defaults are reported to credit agencies, resulting in a negative impact.
While on-time payments are also reported, not all lenders will take them into account. Consequently, relying on Klarna solely to enhance your credit score may not be the most advisable approach.
How to manage Klarna and your credit score
Klarna can be a useful tool, but using it responsibly is key. Here are some golden nuggets to remember:
- Only use Klarna for what you can afford: Don't get swept up in the BNPL hype and overspend.
- Make your repayments on time (every time!): Avoid late fees and potential damage to your credit score.
- Monitor your credit report: Keep an eye on your credit report to ensure all information is accurate.
Remember: Klarna is a financing tool, not a free pass to spend without consequence. By using it strategically and managing your finances responsibly, you can leverage Klarna's benefits without jeopardizing your credit score.
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Customers with good credit habits, see an increase in their credit score of 52 points on average in their first 3 months*.
*Data is based on a study of active customers with good credit habits. Individual results may vary. For details please see the full study at buildmyscreditscore.com/study