Klarna purchases will soon affect your credit score

Klarna will report the use of BNPL products and missed payments with UK credit reference agencies in a bid to help build credit scores and stop consumers from building up multiple lines of credit.

Klarna’s 16 million UK customers will soon see their credit scores impacted when using Buy Now Pay Later (BNPL) products. 

From 1 June 2022, Klarna will begin reporting the use of BNPL products with Experian and Trans Union, two credit reference agencies.

This will allow users to both build their credit history when Klarna purchases are paid on time as well as impact scores when late payments and unpaid purchases occur. It will apply to both Klarna’s  Pay in 30 and Pay in 3 orders made on or after 1 June.

Purchases made before 1 June will not be reported; neither will payments relating to purchases made before 1 June. 

UK consumer credit scores will not initially be impacted as this requires further updates to the scoring mechanisms used by the CRAs; however, this will likely occur later in 2022. 

As a consequence, lenders will have greater visibility on UK shoppers’ use of Klarna’s BNPL products,  as well as help to improve affordability assessments, the company said in a media statement, as well as stopping consumers from building up multiple lines of credit.

The government has long aimed to bring buy now, pay later under the oversight of the FCA, a move it announced would go ahead in February of 2022 following on from the Woolard Review. 

Klarna says it has partnered closely with CRAs in the UK over the past two years to help them update their systems to the point where they are now able to receive and process BNPL data in a fair and balanced way.

Previously, BNPL users would have undergone a soft credit check but only in certain cases were data reported to CRAs.

“It is alarming that UK consumers are still being forced to take out high cost credit cards to demonstrate they can use credit responsibly and build their credit profile,” said Alex Marsh, Head of Klarna U.K., 

“That will start to change on 1 June this year as the vast majority of the 16 million UK consumers who make Klarna BNPL payments in full and on time will be able to demonstrate their responsible use of credit to other lenders.” 

“We are pleased to help protect our UK customers and continue to cement our leadership in responsible lending, now the credit reference agencies are in a position to accept our data. This was a key area of concern highlighted in the FCA’s Woolard Review and we very much took to heart the advice from Chris Woolard at the time to, ‘not wait for regulations before making changes,’” Marsh said.