Klarna will NOW share your buy now, pay later borrowing data with Experian and TransUnion - here's what it means
From today, shoppers using Klarna's buy now, pay later (BNPL) services will have their repayment data shared with two of the UK's biggest credit reference agencies, so how you manage your repayments could affect your ability to get credit.
The move is good news for those who use Klarna's payment plans responsibly as payments made on time will help establish a positive credit history, which could boost borrowing chances when applying for mortgages and other traditional forms of credit. The change, however, also means that if you miss a payment, or pay late, you could be less likely to be accepted for credit in future.
The Government had previously proposed new rules for the largely unregulated BNPL sector but Klarna's decision to share its data with Experian and TransUnion comes ahead of any regulation being put into law. (For more information on how BNPL works in general, see our Buy Now, Pay Later guide.)
Klarna will NOW report customers' buy now, pay later data
Klarna will pass on data about its customers' BNPL repayments to Experian and TransUnion, but any payment history you have with Klarna before today (1 June) won't be reported.
Klarna will report:
- Purchases made on time. This could benefit your credit file and improve your chances of getting accepted for a loan, mortgage or credit card in the future.
- Late payments for purchases. This could be detrimental to your credit file and could make it less likely that you'll be accepted for other forms of borrowing.
- Unpaid purchases. This, like any other missed credit repayment, could really damage your credit file and would be seen as an immediate red flag by other lenders.
The reporting will be effective on all new purchases made in the UK using Klarna 'Pay in 3', 'Pay in 30', in app shopping or in-store purchases using a Klarna card.
Repayment data from Klarna won't affect your credit score - for now
Klarna says that its reporting of data won't feed through to credit scores yet as Experian and TransUnion are still working on their scoring mechanism to include it. Both credit reference agencies expect that data from Klarna will impact credit scores by the end of this year.
Yet, your credit score from a credit reference agency is only an indication of how well, or badly, you manage credit. All Klarna payment data will be visible to other lenders through credit files, and it's this - not your credit score - which impacts how likely you are to be accepted for other credit, as each lender has its own score card.
Rival BNPL provider Laybuy already shares data with Experian but it is yet to share data with Equifax or TransUnion. Clearpay, meanwhile, has confirmed it has no intention of sharing customer data with credit reference agencies.
'This is a welcome move by Klarna'
Helen Saxon, deputy editor of MoneySavingExpert, said: "This is a welcome move by Klarna for two reasons. The first is that if you borrow using BNPL and you pay on time, it'll help you build up a good credit history. That in turn may mean you're more likely to be accepted for other forms of credit, as you've shown you can manage repayments.
"The second reason is that it'll help other lenders get a fuller picture of how much you owe. This is important as if you've a lot of BNPL debt, or you're struggling to repay each month, other lenders will be able to make a better, more informed decision about whether they are willing to lend to you compared with now, when they may not know you used BNPL."
Traditional forms of credit still offer better protection than buy now, pay later
BNPL is a form of credit, so it makes sense to consider whether BNPL or a more traditional form of credit, such as a 0% credit card or 0% overdraft, is better for you. Check out our Best 0% Credit Cards guide and our Top Current Accounts if you're overdrawn for a full break down.
If you choose to borrow through unregulated BNPL firms you'll be forfeiting any Section 75 Protection and a right to complain to the Financial Ombudsman. You'll also have a much shorter repayment window than if you were to borrow through a credit card or overdraft.