Klarna offers “buy now, pay later” financing, which essentially works like a line of credit. However, their financing won’t build your credit the same way an ordinary credit card or a loan will.
To understand when (and how) Klarna can impact your credit, you’ll need to know a little about how Klarna’s services work and what their policies are for reporting information to the credit bureaus.
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What is Klarna?
Klarna is a financial technology company that’s best known for their “buy now, pay later” (BNPL) services. They work directly with retailers and financial institutions to help you buy items you want now and pay for them later.
Originally founded in Sweden in 2005, Klarna partners with retailers all over the world and operates in multiple countries. 1
How Klarna’s buy now, pay later service works
Klarna’s BNPL service is very simple. When you make a purchase with Klarna, they’ll pay the retailer (the actual seller) the full price of the item immediately. Klarna will then set up a payment plan for you, and you’ll pay them back in several regular installments over the next few weeks or months.
Does Klarna report to the credit bureaus or affect your credit score?
Creditors often report your borrowing activity to the three main credit bureaus that produce your credit reports (Experian, Equifax, and TransUnion).
The information that your creditors report is used to calculate your credit score. If they report positive information, your credit score will improve, and if they report negative information, your score will suffer.
Unfortunately, Klarna doesn’t report positive information (such as on-time payments) to the credit bureaus. However, they may report negative information (e.g., late payments).
This means that Klarna can affect your credit score, but only by hurting it. You can’t build credit by using Klarna, and it will never improve your score.
How Klarna can hurt your credit
Klarna has the potential to damage your credit score in several ways:
Running a hard credit check
When you apply for financing through Klarna, they’ll sometimes perform a type of credit check known as a hard inquiry, which will temporarily lower your credit score by around 5 points. (Hard inquiries can be contrasted with soft inquiries, which have no effect on your credit.)
Whether you’ll receive a hard credit check depends on the type of financing you apply for. For example, applying for an open-end Klarna Credit Account through WebBank will trigger a hard inquiry. Klarna states that some of their other financing options may trigger one as well, but they’re vague about which ones. 2 3
Actions that won’t hurt your credit
The actions below won’t incur a hard inquiry or lower your credit score: 2 4
- Signing up for a Klarna account without applying for financing
- Downloading the Klarna app
- Applying for an interest-free payment plan
- Applying for a closed-end loan
- Agreeing to Pay in 4 financing
- Selecting your preference for Pay in 30 Days financing
- Applying for monthly financing
Klarna’s website isn’t always transparent about when they perform hard inquiries, so if the type of financing you want isn’t listed above, you can contact them on their customer service page (or via their app) and ask them directly.
Reporting late payments
If you miss a payment on your Klarna account, it’s possible that they’ll report the late payment to the credit bureaus.
As with hard inquiries, they’re not very upfront about when, exactly, they’ll do this. For example, on the FAQ page for one of their services (“Pay in 4 financing”), Klarna states that they “don’t report account information to the credit bureaus.” 5 However, their Terms and Conditions page explicitly reserves the right to report negative information. 6
They also reserve this right on the terms page for at least one other type of financing (Pay Later by Card). 7
The upshot is that, although Klarna claims that they won’t hurt your credit, you can’t count on this. It’s possible that damaging derogatory marks will appear on your credit report if you miss payments on your Klarna account.
Sending your debt to collections
Like any other creditor or lender, if you consistently fail to pay back a debt to Klarna, they might sell or transfer it to a debt buyer or a debt collection agency. If this happens, a very damaging mark called a collection account will appear on your credit report.
Collection accounts can cause your credit score to drop by over 100 points, and they can stay on your credit report for 7 years, even if you pay off the debt in collections. 8 To protect yourself, it’s very important not to default on any debts that you owe to Klarna.
Should you use Klarna to make purchases?
You should always think carefully before borrowing money or opening a new line of credit. The secret to maintaining healthy finances and a good credit score is to use your credit responsibly—which usually means only borrowing money when you really need it.
With that said, Klarna isn’t a scam, and when used responsibly, their BNPL services can get you zero-interest financing. This could put less stress on your finances than using a regular high-interest credit card or personal loan to make a purchase.
If you do open a Klarna account, don’t be tempted to buy things you otherwise wouldn’t have gotten just because you don’t have to pay for them right away. It’s easy to fall into this trap when using credit, but it can lock you in a cycle of debt that it can be very hard to get out of.
Alternatives to Klarna
If you’re not sold on opening a Klarna account, there are several other options you can consider:
- Paying the full price upfront: At the end of the day, any purchase is going to cost the same amount of money whether you buy it upfront or space it out into interest-free installments. Committing to buying upfront is no more expensive than using Klarna, and it’s arguably safer, since there’s no risk of missing a payment down the line.
- Waiting to make the purchase: If you’re considering using Klarna to make a purchase because you can’t afford the item outright, you might be better off taking some time to save up (or reconsidering the purchase altogether) to avoid the strain on your finances.
- Using a credit card with a 0% APR: If you have decent credit, you may be able to qualify for a 0% APR credit card (one with an introductory period in which you don’t have to pay interest). This will get you the same benefits of Klarna’s zero-interest financing but with the addition of a new line of credit that you can use to make other purchases and build up your credit score.
If you were mainly interested in Klarna because you thought it could improve your credit score, you should also look into other methods for building credit. Some are much safer, such as choosing a good secured credit card, taking out a credit-builder loan, or piggybacking credit from a close friend or family member.
