Does Klarna Affect Your Credit Score?

Klarna is a popular way of splitting up or delaying payments, but using Klarna could put your credit score at risk. Keep reading to find out how.
A person holds their phone with a buy now, pay later app open

Yes and no. While Klarna currently doesn’t have a direct impact on your credit score, you can still damage your credit score by using the Buy Now, Pay Later (BNPL) service. It may sound confusing, but it has to do with the way that your Klarna payments are currently  recorded in your credit report, and how they’ll impact you in the future. 

Here, we’ll unpack how changes to the BNPL industry will impact your credit score, and how they’re already impacting your credit report.

Does Klarna Report to Credit Bureaus?

Yes—as of June 1, 2022, Klarna has reported users’ payments to two of the UK’s major credit bureaus, Experian and TransUnion. This comes as the Buy Now, Pay Later industry is facing intensifying scrutiny from consumer advocates.

For now, your Klarna payment information is reported to Experian and TransUnion and is included in your credit report. However, that doesn’t directly impact your credit score. Experian and TransUnion are yet to incorporate Klarna payment information into users’ credit scores. This will change soon.

When Will Klarna Use be a Factor in Your Credit Score?

When Klarna began reporting user payments to Experian, Experian said it would take about 12-18 months for this information to start being incorporated into credit scores. This means that if you’ve been using Klarna or another BNPL provider that reports to a credit reference agency, it could start impacting your credit score as early as June 2023.

Klarna Can Still Damage Your Credit Score

Just because credit bureaus aren’t currently incorporating your Klarna payments into your credit score doesn’t mean that using Klarna can’t affect your credit score. It can. For example, if a lender rejects your application for credit after seeing your BNPL usage in your credit report, the rejection will have a negative impact on your credit score.

That dip in your credit score from being rejected might not sound particularly meaningful, but it could potentially be the determining factor in securing a mobile contract, a rental unit, or other financial tools further down the line.

Additionally, you could seriously damage your credit score if you miss multiple payments for Klarna. If that happens, a default could be reported on your credit file. This is a disastrous blow to your credit score and credit report, and can make it even harder to qualify for credit products for the next six years.

FAQs About Klarna, BNPL, and How They Impact Your Credit

BNPL point-of-sale loan providers like Klarna are only growing more common. As their impact on your credit report and credit score grows, it’s only leaving Brits with more questions. Here, we answer some common ones.

What Information From Klarna is Included in Your Credit Report?

The information that credit reference agencies and credit bureaus receive from Klarna will be broadly similar to the information they receive from a bank or credit card provider. This includes details about:

  • When a purchase was made
  • The cost of the monthly payments
  • The account’s balance
  • The timeliness of repayments

Can Lenders See Your Buy Now, Pay Later Usage?

Yes, because your BNPL payment information is now available in your credit report, lenders can see that information if you apply for a form of credit with them. This information won’t impact your credit score for now, but the information included in your credit report could still impact a bank or lender’s decision to offer you a line of credit (and that can impact your credit score).

How Will This Impact My Credit Score in the Future?

Your use of BNPL services like Klarna will have a more direct impact on your credit in the future, for better or for worse. Just like timely payments for anything else can benefit your credit score, timely BNPL payments could benefit your credit score in the future. Likewise, late and missed payments will damage your credit score.

What Should You Use: Klarna or a Credit Card?

Klarna has been positioned as an alternative to credit, but this hasn’t been completely accurate. However, with Klarna payments set to be incorporated into your credit scores within the next eight months, there’s renewed interest in whether BNPL is a viable alternative to credit cards. Although some BNPL services could be more beneficial for a user’s credit score, the same risks remain.

Some of these potential consequences are that:

  • Buy Now, Pay Later services like Klarna can encourage unnecessary spending: By promoting low payment amounts, some Klarna users are convinced to make purchases they otherwise wouldn’t. When these payments start adding up, it can make your monthly budget rigid and unable to adapt to emergencies.
  • You lack common consumer protections: The Consumer Credit Act protects consumers like you against certain things that are out of your control, such as a package getting lost or stolen. In these instances, credit card companies are required by Section 75 of the CCA to refund your purchase, but BNPL schemes aren’t regulated by the CCA and therefore don’t owe you that protection.
  • Credit card interest still applies: Although Klarna doesn’t charge you interest, if you make the purchase using your credit card, you could still accrue interest if you don’t pay your credit card off on time.

Ultimately, using a credit card wisely will benefit you much more in the long run than Klarna. By making timely payments, using no more than 25% of your credit limit, and making payments in full, you’ll improve your credit score over time and avoid costly, negative marks on your credit report.

Risky Products Don’t Build Your Credit—Pave Does

Even when you make timely payments to Klarna, it won’t have a positive impact on your credit score. On the other hand, each credit card or loan payment establishes your payment history and builds your credit score over time. However, not everyone is eligible for credit cards or loans, which is why we made the Pave app.

With Pave, we report your timely payments to credit reference agencies to actively build your credit and monitor your upcoming bills to make sure you don’t miss payments. Building credit takes time, but it’s even harder to do when you have negative marks on your credit report like a collections account. To learn more about building credit the right way or get started building your own credit, check out the other resources on our blog or download the Pave app from the App Store or Google Play today.