Klarna is a popular Buy Now Pay Later (BNPL) service that allows you to pay for your purchases in four easy installments. If you use Klarna and are curious to know -Does Klarna report to Credit Bureaus on your transactions, you are on the right post to get the complete details.
Klarna is essentially a form of credit where you avail credit from Klarna to fund your purchases which you can repay in installments.
However, unlike credit card companies and bank loans which are considered mainstream credit products and require reporting to implement various credit checks, buy now pay later companies like Klarnna, Affirm, After Pay, etc. have not been regulated to that extent.
Does Klarna report to Credit Bureaus? As per Klarna’s terms, Klarna may report on defaults to Credit Bureaus, which can impact your credit score. However, Klarna does not perform a hard credit check and even does not report your on-time payments to Credit Bureau.
But the recent huge surge in usage of BNPL service has increased the voice of regulators and others from the credit industry to make the BNPL players to formally report all these transactions to Credit Bureau.
All the three major credit bureaus have already started setting up systems to accept data from Buy Now Pay Later Companies. While this data may not immediately impact your credit score, the writing is on the wall that it will eventually be a part of your credit data report.
This has both positive and negative repercussions. If you have not been using any other credit product like loans and credit cards and your only form of credit is BNPL, then you can actually see an increase in your credit score if you pay your Klarna BNPL installments on time.
On the other hand, it can negatively impact your credit score if you fail to pay installments in time.
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Does Klarna Report to Credit Bureaus
Klarna does not perform hard credit checks at the time of approval for its “Pay in 4” or “Pay in 30 days” installments services. But as per Klarna terms, Klarna may report on defaults to Credit Bureaus, which can impact your credit score.
But if you opt for any traditional long-term finance product e.g. Klarna financing account which comes with interest i.e. pay in six months or more, this entails a hard credit check at the time of approval, which can impact your credit rating.
So you need not worry about Klarna reporting to Credit Bureaus if you are using the standard Klarna “Pay in 4” or “Pay in 30” products if you have been paying installments on time.
However, this non-reporting to credit bureaus has a downside since your on-time Klarna payments do NOT help improve your credit score.
In fact, recently Klarna has started using your credit score as factor to determine your Klarna purchase power, which has also led to many users seeing a reduction in their Klarna spending limit.
Does Klarna Affect your Credit Score if you don’t pay
As per Klarna’s terms, in case of default, Klarna may employ a debt collection agency to collect payment and report default information to the credit bureau, which can negatively impact your credit score.
So Klarna can have an impact on your credit score if you default on your payments.
Again, the terms are not clear if this includes late or missed payments.
However, according to a survey by Credit Karma, 72% of users who have missed payments on the buy now pay later service to believe it has caused a decline in their credit score.
Further, according to the study, 34% of those who have used BNPL services, have fallen behind on one or more payments.
Is there a Klarna Minimum Credit Score requirement
There is no minimum credit score on Klarna for Pay in 4 loans.
At the time of approval for a transaction, Klarna performs a soft credit check, which does not impact your credit score. Klarna may also consider other factors like any existing unpaid balance you owe on an earlier Klarna purchase, length of your credit history, amount of transaction, etc. to approve a transaction.
But if you apply for a long-term financing product with Klarna, this will subject you to a formal hard credit check.
This credit check does appear as an inquiry on your credit report. Every such credit inquiry can reduce your credit score by a few points.
Seeing Klarna WebBank on your Credit Report
Klarna has a tie-up with WebBank, for the lending. Klarna/WebBank on your credit report refers to a Klarna account.
If you are seeing Klarna WebBank on your Credit Report, it is probably if you have opted for a traditional long term finance arrangement with Klarna which also has the interest component i.e. Pay over a period of six months or more
With Klarna, you can defer payment to a later date or pay in installments.
Klarna Six Months Credit Score
Klarna “Pay Over Six months” is a traditional finance option offered by Klarna, which also requires paying interest. Unlike “Pay in 4” or “Pay over 30 days”, this option subjects you to a hard credit check, which may impact your credit score.
The Klarna “Pay over six months” option is offered by Klarna in partnership with WebBank which is the bank that lends the fund for the purchase.
Wrap Up
While Klarna does not report to Credit Bureaus on PoS loans (unless its a default e.g. missed payment) like Pay in 4 etc. This may change soon with the BNPL becoming a mainstream payment option. It is a matter of time before you will be able to see BNPL transactions being reported to Credit Bureaus which may eventually impact your credit score. So it will be prudent to follow the right practices you follow with any credit i.e. paying on time and not overutilizing BNPL finance.
