Does Klarna Affect Your Credit Score? Everything you Need to Know

Using Klarna for your shopping can be convenient, but it’s important to understand how it might impact your credit score. Let’s break down how different Klarna payment options can affect your financial health.

Key Takeaways

• Klarna’s Impact on Credit Score: Klarna, a popular online payment method, can affect your credit score based on the payment option you choose and your payment habits. It’s important to understand how each option works to maintain a healthy credit profile.
• Payment Options and Credit Checks: Klarna offers several payment options, each with different impacts on your credit score. Pay in 30 Days involves a soft credit check, while Pay in 3 and Klarna Financing involve hard credit checks.
• Consequences of Missed Payments: Missing payments with Klarna can lead to late fees, debt collection, and a decrease in your credit score. It’s crucial to make payments on time and monitor your credit report regularly.

What is Klarna?

Klarna is a popular payment method that offers multiple ways to manage your online shopping expenses. Here’s how each option works and what you need to know.

How Does Klarna Work?

Klarna provides several payment options:

Pay in 30 Days

This option lets you pay for your order within 30 days from the purchase date without any extra fees or interest. It’s a great way to buy now and settle the payment later. When you use Pay in 30 Days, Klarna performs a soft credit check, which doesn’t affect your credit score. However, failing to make the payment on time can result in Klarna reporting this to credit reference agencies, potentially harming your credit score and appearing on your credit file.

Pay in 3 Instalments

With Pay in 3, you can spread the cost over three equal monthly payments. The first payment is due at the time of purchase, with the next two payments due 30 and 60 days later. It’s important to manage your credit limit wisely to avoid negatively impacting your credit score. This option is interest-free and fee-free, making it easier to budget for larger purchases. However, Klarna performs a hard credit check when you choose this option, which can temporarily lower your credit score.

Klarna Financing (Buy Now Pay Later)

This option allows you to defer payments for a longer period, typically 6 to 24 months, and is ideal for more expensive items. This is a regulated credit product designed for higher value purchases. Interest and fees may apply, depending on the retailer and repayment terms. You will need to sign a regulated credit agreement during the application process. Klarna conducts a hard credit check for financing, impacting your credit score. Late or missed payments can be reported to credit reference agencies, negatively affecting your credit rating.

How Klarna Affects Your Credit Score

Using Klarna can have different impacts on your credit score based on the payment option you choose and your payment habits.

Application Process

For Pay in 30 Days, your credit score remains unaffected during the application as no hard credit check is done. But for Klarna Financing and Pay in 3, a hard credit check is performed, appearing on your credit report and potentially lowering your score temporarily, as reported by a credit reference agency.

On-Time Payments

Making timely payments with Klarna can demonstrate responsible financial behaviour, which positively reflects on your credit profile. Although on-time payments for Pay in 30 Days and Pay in 3 aren’t directly reported to credit bureaus, they contribute to a healthy overall financial behaviour.

Missed Payments

Missed payments are where Klarna can significantly impact your credit scores. Missing payments, especially with Klarna Financing, can be reported to credit agencies like Experian and TransUnion. Consistently late or missed payments can lead to a noticeable drop in your credit score negatively and may result in your debt being handed over to a debt collection agency.

What Happens if You Miss Payments?

It’s essential to understand the consequences of missed payments and non-payment when using Klarna. Here’s what can happen if you fall behind.

Late Fees

Missing a payment on the Pay in 30 Days option can result in late fees. The amount varies, so it’s crucial to be aware of the specific terms to avoid unexpected charges.

Debt Collection

If missed payments accumulate, Klarna might pass your debt to a debt collection agency, adding more stress and financial complications.

Credit Score Impact

Even though using Pay in 30 Days or Pay in 3 initially doesn’t impact your credit score, non-payment or frequent late payments can lead to unpaid balances.

Late payments reported to credit reference agencies can decrease your credit score, affecting your ability to get credit in the future, especially if there are unpaid purchases.

Tips for Using Klarna Wisely

1. Set Payment Reminders: Ensure you don’t miss due dates. Setting reminders can help you avoid late fees and potential credit score damage.
2. Understand Terms and Conditions: Be clear about the repayment terms for each Klarna option you use. Know the due dates and any potential late fees to avoid surprises.
3. Monitor Your Credit Report: Regularly check your credit report to stay informed about your credit status and to catch any errors early. This helps in maintaining a good credit profile.
4. Use Credit Responsibly: Only borrow what you can afford to repay. Using BNPL services responsibly can help manage your finances without negatively impacting your credit score.

Final Thoughts

Using Klarna can be a helpful tool for managing your shopping expenses, but it’s important to be aware of how it can affect your credit score. By understanding the different payment options and their potential impacts, you can use Klarna responsibly and maintain a healthy credit profile. Always make your payments on time and monitor your credit report regularly to ensure that your financial health remains in good standing.

FAQs

Does using Klarna affect my credit score?

Yes, using Klarna can affect your credit score. The impact depends on the payment option you choose and your payment behaviour. Klarna’s Pay in 30 Days and Pay in 3 Instalments options usually involve a soft credit check, which doesn’t impact your credit score. However, Klarna Financing involves a hard credit check, which can temporarily lower your score.

What is a hard credit check and how does it affect my credit score?

A hard credit check is a detailed inquiry into your credit history that lenders conduct when you apply for credit. This type of check can temporarily lower your credit score by a few points. Klarna performs a hard credit check when you opt for their Financing option.

Will late payments on Klarna impact my credit score?

Yes, late payments can negatively impact your credit score. If you miss payments, Klarna may report this to credit reference agencies, which can lower your credit score and affect your future ability to borrow money.

Does Klarna report to credit reference agencies?

Klarna reports to credit reference agencies like Experian and TransUnion. This means your payment history with Klarna, especially missed payments, can appear on your credit report.

Can using Klarna improve my credit score?

Using Klarna responsibly and making all payments on time can demonstrate good financial behaviour, which can positively impact your overall credit profile. However, Klarna payments themselves do not directly improve your credit score.

How can I avoid negatively impacting my credit score when using Klarna?

To avoid negatively impacting your credit score, make sure to make all payments on time, understand the terms and conditions of your payment plan, and monitor your credit report regularly to catch any discrepancies early.

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. Missed payments may also have legal implications under the Consumer Credit Act. This can lead to a decrease in your credit score and may result in your debt being handed over to a debt collection agency.

Does Klarna perform a credit check when I sign up?

Klarna performs a soft credit check when you sign up or use their Pay in 30 Days and Pay in 3 Instalments options, which does not affect your credit score. A hard credit check is performed for Klarna Financing, which can impact your credit score.

Can lenders see my Klarna usage on my credit report?

Yes, lenders can see your Klarna usage on your credit report. This includes information about your payment history and any missed payments, which can influence their decision when you apply for other types of credit.

Is Klarna a good option for building credit?

While making timely payments can reflect positively on your credit history, Klarna itself is not designed to build credit. Traditional methods like using a credit card responsibly or taking out a small loan and repaying it on time are more effective for building your credit score.