Klarna and Credit Checks

15th Oct 2024

Buy now and pay later has become a huge trend in recent years, with companies such as Klarna allowing you to pay over a longer period of time. Depending on the retailer, you may have the option to delay payment and then pay the full amount in 30 days, split the amount into four separate payments, or spread the cost over a longer period of time. Klarna and similar sites this sort of flexible finance on sums which are smaller than for traditional hire-purchase or 0% finance options, and this new sort of credit isn’t widely understood. One of the main things people struggle with is whether buying something using a buy now, pay later agreement will affect your credit score.

Credit Checks Dependent on Option Chosen

Klarna will perform credit checks before deciding whether to allow you to spread the payments, but the impact on your credit score depends on the payment option you select at checkout.

• Soft Credit Check: Klarna and similar lenders will perform a soft credit check for all “Buy Now Pay Later” options. A soft credit check does not affect your credit score, and is like checking on a website whether you are likely to be accepted for a loan before making a firm application.
• Hard Credit Check: A hard credit will be run if you apply for financing over a longer period and may impact your credit score.

It is important to remember though that when you agree to take out a Klarna or similar agreement, that the finance company will be reporting about whether you do in fact make the payments if you agree. If you pay late, or don’t pay at all, this will be reported back to the credit referencing organisations and will affect your ability to get credit in the future.

These sorts of buy now and pay later agreements will also come up when you are asked to complete an affordability check for a bigger credit arrangement as a mortgage. A small number of Klarna or similar money shouldn’t be the deciding factor on a mortgage agreement, but a large number might call into question whether a mortgage is affordable for you.

How Using Klarna Affects Your Credit Score

Using Klarna responsibly can positively influence your credit score. This is particularly a good idea for young people, or those without a long credit history who struggle to get loans or credit cards. If you decide to buy something using Klarna or similar, and make payments in full as agreed, this will reflect positively on your credit score as it shows you can be trusted. On the other hand, borrowing more than you can manage or making late payments can have a negative effect. Information about payment holidays, existing balances, and any late or unpaid amounts is recorded on your credit file and visible to other lenders. Remember – the key to using this sort of finance responsibility is not to borrow more than you can afford to easily pay back, and make sure that payments are always made on time.