Shopping with Klarna does not typically raise your credit score. Klarna is known for providing “buy now, pay later” (BNPL) options that allow customers to pay for purchases over time, but this flexible payment method doesn’t usually impact your credit score in a positive way. However, certain scenarios involving Klarna could potentially influence your credit score, both positively and negatively, depending on how you manage your payments. Here’s a breakdown of how Klarna affects your credit and what you should know.
1. Klarna’s Payment Options and Their Credit Impact
Klarna offers several payment options, each with different impacts on your credit score. It’s important to understand these options to determine how they might influence your credit.
a. Pay in 4 (Installments)
- Klarna’s “Pay in 4” option lets you split your purchase into four interest-free installments.
- Impact on Credit Score: Klarna typically does not perform a hard credit check for “Pay in 4” transactions. This means these payments do not appear on your credit report, so they won’t help you build credit, but they also won’t negatively impact your score unless you miss payments. In some cases, Klarna might conduct a soft credit check, which doesn’t affect your credit score.
b. Pay Later in 30 Days
- This option allows you to pay for your purchase 30 days after it has been shipped.
- Impact on Credit Score: Similar to the “Pay in 4” option, Klarna does not generally perform a hard credit check for “Pay Later in 30 Days.” Missing a payment, however, could result in late fees and potentially harm your credit if the debt is reported to credit bureaus.
c. Financing (Pay Over Time)
- Klarna’s financing option is a longer-term payment plan that can range from 6 to 36 months. This plan includes interest charges.
- Impact on Credit Score: Klarna performs a hard credit check when you apply for financing, which can temporarily lower your credit score by a few points. This option works more like a traditional loan, so making regular on-time payments could positively influence your credit score over time. However, missed or late payments can damage your credit score if reported to credit bureaus.
2. How Klarna Affects Your Credit
a. Soft vs. Hard Credit Checks
- Soft Credit Checks: Klarna uses soft credit checks for most of its interest-free payment options, such as “Pay in 4” or “Pay Later in 30 Days.” These checks are not visible on your credit report and do not impact your score.
- Hard Credit Checks: When applying for Klarna’s financing option, a hard inquiry is conducted. Hard inquiries can slightly lower your credit score, but the impact is usually temporary, lasting around 12 months. A hard inquiry will remain on your credit report for up to two years.
b. Positive Impact on Credit
- On-Time Payments: Making timely payments on Klarna’s financing option could help build a positive credit history, especially if reported to major credit bureaus. Consistently paying off loans in full shows responsible credit behavior and may help improve your score over time.
- No Impact for Pay in 4 or Pay Later: Klarna’s short-term, interest-free payment plans (like Pay in 4) typically do not appear on your credit report, so using them won’t increase your credit score, even if you pay on time.
c. Negative Impact on Credit
- Late or Missed Payments: If you miss a payment with Klarna, particularly under a financing plan, it can result in late fees and might be reported to credit bureaus. This could negatively impact your credit score.
- Collections: If a debt owed to Klarna is not paid and goes into collections, it could be reported to credit bureaus, which would have a significant negative effect on your credit score.
3. How to Avoid Credit Score Issues When Using Klarna
a. Keep Track of Payments
- Klarna sends reminders, but it’s essential to stay on top of payment due dates, especially for financing plans or Pay Later options. Missing payments could lead to negative marks on your credit report.
b. Use Klarna Responsibly
- Limit your use of Klarna’s financing options unless necessary. While financing can spread out large purchases over time, it can lead to interest charges and affect your credit score. Always make sure you can afford the payments before using Klarna for financing.
c. Monitor Your Credit
- Regularly check your credit report to ensure that any Klarna-related activity is accurately reflected. This can help you spot any discrepancies or unexpected negative marks related to Klarna usage.
4. Does Klarna Build Credit?
While Klarna’s financing option can potentially help you build credit through positive payment history, Klarna’s other payment options (Pay in 4 and Pay Later) do not typically help build credit because they are not reported to credit bureaus. Klarna is designed to offer flexible payment options without the long-term obligations or risks associated with traditional credit, which is why most of its services don’t directly affect your credit score.
Klarna and Your Credit Score
In most cases, shopping with Klarna won’t raise your credit score. Klarna’s interest-free payment plans like “Pay in 4” or “Pay Later in 30 Days” are not reported to credit bureaus, so they won’t positively impact your credit score. However, Klarna’s financing option, which involves a hard credit check, can affect your score and help you build credit if managed responsibly.
The key takeaway is to use Klarna’s services wisely. If you are using their financing option, ensure you make on-time payments to avoid hurting your credit. For those using Klarna for short-term installment plans, it offers a flexible way to manage payments without the need to worry about credit impacts.