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Does Klarna Affect Your Credit Score?
Thinking of using Klarna for your next online purchase but worried it could negatively impact your credit score? Let’s check out the dangers…
In your own mind, treating yourself to new things might be essential, but so can maintaining a good credit score, particularly if you have long-term ambitions for loans and mortgages.
With Klarna, you may shop from more than 200,000 online stores worldwide for items that might cost a substantial amount of money without having to accumulate the funds first.
Although utilising “buy now pay later” services may be a terrific method to stretch out the expense of purchases across a few weeks and months, there can be drawbacks as well.
Since you are technically borrowing money when you use many online payment systems, this might have an impact on your credit score. Maintaining your credit score is clearly vital, thus it’s critical to understand if using Klarna for your next online purchase will have an impact on your credit score.
Will Using Klarna Affect My Credit Score?
While your credit score will have not previously been affected by using Klarna, it may begin to do so from the 1st of June 2022.
From June 1, 2022, Klarna will continue to report clients to credit bureaus if they utilise financing or skip payments, but it will also begin sharing information with two major UK credit bureaus, Experian and TransUnion, regarding your transactions and debts.
In its release, Klarna said that for both its “Pay in 30 days” and “Pay in 3” offerings, information on “customer purchases paid on time, late payments, and unpaid purchases” would be shared.
In order to determine your creditworthiness, credit card firms and lenders often utilise data collected by credit bureaus. The good news is that until the end of 2023, the change won’t begin to affect credit ratings.
How Will Klarna Affect My Credit Score?
You have to remember that like with all kinds of financial borrowing, the fact that Klarna will now be reflected on your credit score doesn’t necessarily have to be a bad thing. If you borrow responsibly and stick to your end of the agreement, Klarna could now have a positive impact on your credit score.
For instance, utilising Klarna might raise your credit score if you borrow a little amount and complete all of your payments on time. This is due to the fact that you’ll be demonstrating to prospective lenders that you have a history of consistently repaying debts.
The failure to make timely payments, however, may result in Klarna reporting you to credit reference bureaus, which might harm your credit score.
If you use Klarna and apply for financing or take out a payment vacation, it might potentially hurt your credit score. These could affect your ability to get a mortgage or a new credit card.
It’s impossible to predict how using Klarna will influence your credit score since the method through which the company reports your debt and repayment information to credit bureaus is new.
Why Is My Credit Score Important?
Your credit score is used by lenders, like Klarna, to assess your creditworthiness. Your credit score impacts your eligibility for credit cards, loans, mortgages, and auto loans as well as the interest rate and conditions that lenders may assign you if you are accepted.
When you apply for a new policy, a lease, or an apartment, potential employers, landlords, and insurance companies could all check your credit report. In these situations, a high credit score might be a sign of your general dependability and accountability.
So before you commit to a £1,000 “loan” from Klarna, make sure you can afford the monthly repayments, and make sure having that item immediately is even worth the risk.
The Benefits Of Using Klarna
For retailers, Klarna offers a number of benefits, such as selling more high-ticket items in a more affordable way. There are many advantages for consumers too, though, such as the following:
Flexibility
This is a really important issue, despite the fact that it is obvious.
Your customers will be able to purchase products that they otherwise would not have been able to afford in a single transaction if you provide them with a variety of payment choices as well as the ability to extend the cost.
This will result in an increase in your conversion rates as well as a reduction in the likelihood of transactions being cancelled at the last minute.
No Hidden Fees
One of the many significant benefits of using Klarna is that clients who choose Pay Later or Pay In 3 will not be subject to late payment penalties or interest costs.
When deciding between the many Klarna options available to you, it is essential to bear in mind that the Slice It payment option does, in fact, charge customers an interest rate.
Refunds Are Still Available
Should the customer change their mind after receiving the items, they are free to send them back and get a complete refund. Klarna will provide a refund for the transaction and will immediately halt any incoming payments after verifying that a customer has cancelled or returned their purchase.
Customers will have a higher level of confidence when making decisions about whether or not to make a purchase as a direct result of the reduced risk.
Payment Reminders
People are often discouraged from choosing delayed payment alternatives by the fact that they are not responsible for remembering the due dates for each instalment. Regular reminders will be sent to your consumers via Klarna in plenty of time for each instalment.
Financial Support
The Klarna staff will assist your client in finding an alternate form of repayment if they are unable to make a payment on time for whatever reason.
Even while this won’t affect your company since Klarna will always pay you in full, you can rest easy knowing that the company supports its clients and assists them in prudent money management.