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

Would you rather pay £60 for a jumper, or £20 three times? In the end, it’s the same amount, but when you’re making an impulse buy, that £20 figure can be very enticing. Klarna, one of the top buy now, pay later (BNPL) providers, has built their businesses on that psychological principle. Despite Klarna’s value plummeting over the last year, and despite the economic slowdown across Europe and the UK, use of Klarna has only risen.

As the winter shopping season approaches and more customers may be tempted to use Klarna, it’s worth revisiting whether Klarna affects your credit score, if it’s a form of credit, and if it’s worth using.

Is Klarna a Form of Credit?

With Klarna charging no interest for its ‘Pay in 3 instalments’ and ‘Pay in 30 days’ payment options, you could be forgiven for assuming Klarna isn’t a form of credit. However, Klarna is actually a type of ‘point of sale credit’ or a ‘point of sale loan.’ When you make a purchase through Klarna, you’re essentially receiving a small, unsecured loan. 

So yes, Klarna is a form of credit, but customers who make their payments on time won’t experience the features that traditional forms of credit, such as credit cards, are known for, like interest rates or late fees. However, they also won’t see the benefits of traditional forms of credit—more on this later. 

Does Klarna Affect Your Credit Score?

According to Klarna, its services don't impact your credit score, but the reality is a little murkier. Beginning in summer 2022, Klarna began reporting various payment details to credit reference agencies. Your payments and existing, late, and unpaid balances are now all recorded in your credit report and are visible to banks, lenders, landlords, or anyone assessing your credit report.

But how does that actually impact you? Let’s say you’ve recently finished university and are looking to get a new credit card or a personal loan. If your credit report shows some unpaid Klarna balances, and you have recently applied for a credit card or personal loan, a bank or lender could see those outstanding balances and determine that they’re unable to extend you a credit card or loan. As the bank or lender would have pulled a hard credit check to view your credit report, your credit score would actually see a slight decrease, yet you’d have nothing (like a new credit card or loan) to show for it.

That small dip 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.

So, while it’s mostly true that Klarna is unlikely to impact your credit score, the data recorded in your credit report can still impact your ability to secure other lines of credit—which can have a huge impact on your credit score. Additionally, this assumes that you’ve made all your Klarna payments on time. But what would the impact be if you didn’t pay on time?

If you missed a payment for either of Klarna’s ‘Pay in 3’ or ‘Pay in 30 days’ payment methods, they will send you a reminder, and the late payment will be recorded in your credit report. However, if you continue to miss payments, your debts can be sold to a debt collection agency. If a collection account is reported on your credit file, it will remain there for seven years, during which it can have a seriously detrimental impact on your credit score and ability to obtain new forms of credit.

What Should You Use: Klarna or a Credit Card?

One of Klarna’s main selling points is that it allows customers to buy something and delay or break up the payments without being charged interest. However, if you pay your credit card balance before the billing period ends, you won’t pay any interest on your purchases, so Klarna might not be quite as revolutionary as it may seem.

It’s worth knowing some of the other potential consequences of using Klarna and similar BNPL services:

  • 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 30% 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.