If you use Klarna to buy products but pay later, then make sure you keep on top of those payments. Soon, missing a repayment could harm your credit score.
Klarna, a lending service that allows shoppers to pay for goods from the likes of Asos and Misguided in installments, has confirmed it will begin reporting to UK credit reference agencies from June. Klarna says it will protect customers and help them build good credit scores, as long as they pay what they owe.
Alex Marsh, head of Klarna UK, said: “It is alarming that UK consumers are still being forced to take out high cost credit cards to demonstrate they can use credit responsibly and build their credit profile.
“That will start to change on June 1 this year as the vast majority of the 16 million UK consumers who make Klarna Buy Now Pay Later (BNPL) payments in full and on time will be able to demonstrate their responsible use of credit to other lenders.”
Securing a good credit score is vital for lending money, including mortgages to buy a home. A poor history of repaying debt or missing scheduled bills can reduce a person’s score.
Klarna said credit scores will not be immediately affected from June, as the credit scoring mechanisms require updates. Klarna will also make it clear to customers that BNPL options are credit products and missing payments has consequences.
Concerns have been raised about the rapid growth in popularity of BNPL firms generally. While BNPL products can help people avoid paying interest on their borrowing, people may rapidly build up debts through using them as an option at online checkouts.
The Woolard Review previously found the use of buy now pay later products nearly quadrupled in 2020, amounting to £2.7 billion.
In February, the Financial Conduct Authority said some BNPL firms had agreed to change the terms in their customer contracts to make them fairer and easier to understand.
The UK Government plans to change the law to bring some forms of unregulated BNPL products into FCA regulation.
Jenny Ross, Which? Money editor, said: “Using buy now pay later is an easy and convenient way to pay for millions. However, with currently little to no information or warnings about the risks of incurring late fees or getting into debt, it raises concerns that many shoppers do not fully understand the products they’re using.
“BNPL providers’ move to work with credit reference agencies to report customer BNPL usage and missed payments is a step in the right direction, as it could help mitigate the risk of consumers taking on more BNPL credit than they can afford.
“However, this does not remove the urgent need for Government regulation of all BNPL firms to follow as quickly as possible to ensure users are properly protected.”