Does Klarna affect credit score?

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Summary:

This article will outline everything you need to know before using BNPL, such as what it is and how it works, how to use it responsibly, and the range of providers available.

Klarna is just one of the many Buy Now, Pay Later (BNPL) companies available to UK consumers.

But while it can allow you to spread the cost of a purchase over an extended period – usually without interest – it can cause financial problems when it isn’t used responsibly.

Knowing how BNPL works is crucial to protecting both yourself and your finances.

Using BNPL to make a purchase might not seem as serious as using a payday loan, for example, but there are still consequences for late or missed payments.

This article will outline everything you need to know before using BNPL, such as what it is and how it works, how to use it responsibly, and the range of providers available.

What is Buy Now, Pay Later?

Buy Now, Pay Later (BNPL) is a way for consumers to purchase goods and services in manageable instalments over a set period (usually three to 12 months) rather than paying the full amount upfront. It’s often offered without interest, meaning you’ll only need to pay back the exact amount you borrow and nothing more.

BNPL has grown in popularity in recent years and can now be used to pay for everything from clothing, groceries, and furniture to holidays, concerts, and even plastic surgery.

It has also been rolled out in physical stores in several countries.

However, BNPL is still a form of credit and therefore must be managed with the same level of caution.

Like a credit card, you should never purchase something you know you won’t be able to pay back (even in instalments) and should always make a note of your repayment dates to ensure you remember.

Furthermore, the BNPL market is still largely unregulated by the Financial Conduct Authority (FCA) with legislation not due to come into force until 2026.

This means that, despite becoming the primary payment method for millions of shoppers in the last decade, there is still a substantial lack of consumer protection compared to other forms of credit.

How does Buy Now, Pay Later work?

BNPL services come with varying terms and conditions, but most companies operate in a similar way. Put simply, when you select BNPL at the checkout, the company pays the retailer the full amount upfront on your behalf and you make a down payment (usually 25%) before repaying the rest over time.

Most BNPL services come with zero interest and a fixed payment schedule, giving you a clear overview of how much you owe and when.

It’s also common for the payments to be deducted from your debit card, bank account, or credit card automatically, reducing the likelihood of late or missed payments.

The main difference between using BNPL and a credit card is that credit cards typically charge interest on any balance carried over to the next billing cycle (e.g. if you only pay the minimum amount, not the full bill at the end of the month).

Does Klarna affect credit score?

Like any form of credit, it’s crucial you stick to your BNPL obligations as agreed. Failure to keep up with your Klarna payments will result in several consequences, including a negative marker on your credit report.

Because your credit score is calculated based on your payment history, any late and unpaid balances will lead to your account defaulting which will be visible on your credit file for six years.

During this time, you’ll find it difficult to obtain credit and will likely be offered a higher interest rate and stricter terms to balance the extra risk to the lender.

Having several BNPL accounts on your credit report can also affect your credit score as it indicates that you’re incapable of paying for goods and services upfront and could therefore struggle to repay a loan if you were to get one.

Since 2022, most BNPL lenders have been sharing payment information with the main UK credit reference agencies (Experian, TransUnion, and Equifax).

However, the level of information visible depends on the credit reference agency and BNPL provider used, with some only reporting to one or two instead of all three.

Most BNPL lenders also perform a ‘soft credit check’ before agreeing to let you use their service to confirm your address and financial history.

This can affect your credit score depending on which payment option you choose at the checkout – especially if you have an otherwise good credit score.

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How can I use Buy Now, Pay Later responsibly?

With the right precautions, BNPL can be a useful way to pay for goods and services you need as soon as possible but can’t afford outright.

Here are some tips to help you use BNPL responsibly:

Do your research

Most BNPL providers offer a ‘pay in four’ model where you make a down payment followed by three further instalments, but you shouldn’t assume that this is the norm.

As the popularity of BNPL grows, longer payment schedules with added interest are becoming more common.

Because of this, it’s crucial you do your research and confirm all charges before agreeing to a BNPL arrangement.

Check the FAQ section of the BNPL company you plan to use and ensure you have a clear understanding of the terms and conditions.

Stick to a budget

Like all forms of borrowing, you shouldn’t agree to a credit agreement without setting clear boundaries first.

This includes setting a budget – if you don’t already have one – and basing it on your monthly income and expenses to give you an idea of what you can realistically afford to spend on BNPL each month.

Some people fall into the trap of spending more when they use BNPL than they would if they paid for it outright.

To avoid exceeding your budget, set a fixed spending limit ahead of time.

Track your spending

If you’re using BNPL regularly or have several accounts open at the same time, tracking your spending can prevent you from being in over your head and racking up debt. With a clear idea of what you can afford to pay, you’ll be less likely to overspend.

Start by tracking your overall spending for signs that you’re regularly exceeding your monthly budget before factoring in your BNPL payments.

For example, if your outgoings are greater than your income or you’re spending more each month on unnecessary purchases, it might be time to limit your BNPL usage.

Monitor payment deadlines

The key to using BNPL responsibly is repaying what you owe on time and in full.

To avoid overdrawing and the potential fees involved, ensure you have enough money for BNPL alongside your essential payments like rent and bills.

If your BNPL provider doesn’t offer automatic payments, set reminders for the day before to ensure you don’t forget.

Regardless of whether you prioritise BNPL or utility bills, there will likely be consequences for missing payments.

Use sparingly

Having multiple BNPL accounts – especially with different providers – can make it difficult to keep track of what you owe and when.

From the moment you checkout using BNPL, you agree to manage your account and any other accounts you have responsibly.

This includes not using BNPL too often and re-evaluating any purchases you deem non-essential.

What other Buy Now, Pay Later providers are available?

Klarna is one of the most popular BNPL providers available in the UK, but it isn’t the only option. Here are some common alternatives:

Clearpay

Clearpay is a popular BNPL provider founded in 2014. It only offers one type of payment schedule which works by splitting the total amount into four equal amounts over six weeks, with the first payment due immediately and the remaining three due in subsequent two-week intervals.

The payments are interest-free and no fees are required, meaning you’ll never pay more than the total purchase price as long as you make payments on time.

There are, however, late payment charges.

Zilch

Launched in 2018, Zilch differs slightly from other BNPL companies in that the money is loaded onto a virtual card.

However, 25% of the total cost must still be paid upfront with the remaining amount paid in equal amounts every two weeks for six weeks.

For example, if you want to purchase a pair of trainers for £85, you’ll pay £21.25 when you checkout.

The next three payments of £21.25 will then come out two weeks later, four weeks later, and finally, six weeks later when the item is fully paid off.

Pay in 3

PayPal launched its BNPL service, Pay in 3, in 2020. It works by splitting the total cost of a purchase into three interest-free payments, with the first due at the time of purchase and the remaining two automatically deducted from your account on the same date over the next two months.

Unlike other BNPL providers, Pay in 3 doesn’t charge late fees. Instead, it may affect your ability to use the service again and your account can still default which will have a serious impact on your credit history as a whole.

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Conclusion

Buy Now, Pay Later (BNPL) is a way of paying for goods and services in smaller instalments rather than making full payment upfront.

It can be a popular way to fund purchases you need immediately but can’t currently afford.

Having defaults on your credit report due to missed BNPL payments can flag to loan and mortgage lenders that you’re a risky borrower.

This can make it difficult to access credit or, at the very least, access credit without high interest.

In some cases, your BNPL debt might even be passed onto a debt collection agency.

When it escalates to this stage, it will have a bigger impact on your credit score and further fees might be added to your outstanding balance.

Key Takeaways

Klarna is one of many Buy Now, Pay Later (BNPL) providers available in the UK that allows consumers to spread the cost of a purchase over an extended period
Like any other form of credit, BNPL can affect your credit score if not used responsibly
Most BNPL providers perform a soft credit check to verify that you'll be able to stick to your payment schedule as agreed
To use BNPL responsibly, do your research, set a clear budget, track your spending, monitor payment deadlines, and use it sparingly
Clearpay, Zilch, and Pay in 3 are some of the most common BNPL providers in the UK
Maxine McCreadie

Maxine McCreadie

Author/Debt Expert

Maxine McCreadie, prominent personal finance writer featured in Vogue and Yahoo News, delivers practical guidance, simplifying money management and championing financial literacy.

How we reviewed this article:

HISTORY

Our debt experts continually monitor the personal finance and debt industry, and we update our articles when new information becomes available.

Current Version

January 29 2025

Written by
Maxine McCreadie

Edited by
Ben McCormack

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