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4 May 2022

Klarna borrowing to go on credit reports from June: what it means for you

The BNPL firm will report purchases paid on time as well as late and outstanding payments
Woman sitting on the floor at home, typing on her laptop

'Buy now, pay later' (BNPL) firm, Klarna, will start reporting the use of its 'Pay in 30' and 'Pay in 3' products with two major UK credit reference agencies in June.

Klarna's 'pay later' schemes are a form of short-term unregulated credit, allowing you to pay for items in instalments or at a later date, interest-free.  

Currently, some BNPL providers do not record information on your credit report, meaning your file won't be marked if you make or miss repayments as it would be with other forms of credit.

This lack of visibility has led the Financial Conduct Authority (FCA) and organisations such as Which? to raise concerns around BNPL users accruing more debt than they can realistically afford.

Here, Which? looks at why Klarna has decided to start reporting on credit reports now and how it might impact your credit score.

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What will Klarna report on?

Klarna will start reporting to credit reference agencies, Experian and TransUnion, for all purchases made with its Pay in 30 or Pay in 3 schemes (including via a Klarna Card or in-app shopping) placed on or after 1 June 2022.

The BNPL firm will report purchases paid on time as well as late and outstanding payments. This means it's more important than ever that you meet your repayments to Klarna from June onwards.

If you have outstanding payments for Klarna purchases made before 1 June, these repayments won't be reported on your file.

Similarly, if you try to use Klarna but your purchase attempt is rejected, this won't be reported.

Why is Klarna reporting on credit files?

Currently, BNPL providers that offer short-term interest-free borrowing aren't regulated and don't have to record how much you borrow and when you repay on your credit report like other regulated credit providers do.

The exemption means you will find some BNPL schemes like Klarna's pay in 30 days don’t leave any trace of your borrowing on your credit report, but other schemes like Laybuy do.

With some or all of your BNPL borrowing hidden, BNPL firms and credit lenders aren't able to see how many repayment plans you've already taken out, or whether you've missed any repayments, making it difficult for these credit providers to assess whether you can afford to take on more debt.

The FCA expressed concern about this lack of visibility in its Woolard Review in February  2021. It claimed it would be relatively easy to accrue £1,000 of debt that credit reference agencies and mainstream lenders can't see. It also said that checks by providers tended to focus on the risks to the firm, rather than whether customers can afford to make repayments.

Which? has been calling for better affordability checks to protect consumers from falling into financial difficulty after we found families and those who are facing financially challenging times are more likely to use BNPL services and many BNPL users do not think they're taking on debt when deciding to pay later at the checkout.

How will this affect my credit score?

Though you'll see your BNPL repayment plans marked on your credit file, your overall credit score won't be impacted for now.

Klarna says further updates to credit reference agencies' scoring mechanisms is needed before credit scores will be impacted.

Experian has said the impact of BNPL on credit reports could take 12-18 months to filter into credit scoring.

Klarna says it's working with CRAs to ensure 'any future impact on credit scores is fair and proportionate.'

How to shop safely with BNPL

With Klarna reporting on credit files from June, it's more important than ever that you make sure you're only taking on BNPL repayment plans you can afford.

Here are our tips on how to shop safely with BNPL:

  • Set up alerts for repayments - put them in your diary or on your phone so you know exactly what to pay back and when. This is particularly useful if you have a number of different repayments to make.
  • Draw up a budget - so you know how much money you're paying back each month, and how much money you can spend. Don't be tempted to spend more to max your credit limit and make sure you'll be able to repay the amount within the agreed timeframe. 
  • Don't overextend your other borrowing - think carefully about whether you'll be able to meet current BNPL repayments before applying for credit from other providers.
  • Make any returns promptly - so you don't end up making repayments for something that you want to send back. We've heard from some BNPL users that refunds can take longer to process if you've paid with a pay later scheme - so it's worth sending your items back asap.
  • Contact the BNPL scheme  - get in touch with the provider if you think you might miss a repayment. Some schemes allow you to snooze or freeze repayments.

Had a problem with a BNPL scheme? You can share your experience using our form.