Klarna, the leading Buy Now Pay Later (BNPL) provider in the UK, has made a big announcement this week.
From 1 June 2022, it will start reporting use of its BNPL products to credit reference agencies Experian* and TransUnion, meaning users of the service might finally be able to bolster their credit history by using it responsibly.
Up to now, how BNPL products affect credit scores has always been a little confusing and the industry itself isn’t regulated by the Financial Conduct Authority (although that’s due to change).
Some providers perform a credit check on applicants and some don’t. Some of these checks are hard checks that go on your record for six months, and some are soft checks that other lenders don’t see. And not all BNPL providers report usage of their services – either positive or negative – to credit reference agencies.
Monzo Flex was one of the few BNPL products that launched with credit scoring in mind.
It performs a hard credit check, which should alert other lenders if it appears you’re taking out too much credit, and it also reports your usage to credit referencing agencies so other lenders can see whether you’re responsible or not.
It seems that Klarna is now going in the same direction.
The company said: “Klarna has long championed greater visibility on the use of BNPL products in the UK, alongside other products they may use, as key to supporting better outcomes for consumers.
“However, the UK’s credit reporting infrastructure was built with traditional credit in mind, so Klarna has partnered closely with the CRAs in the UK over the past two years to help them update their systems to the point where they are now able to receive and process BNPL data in a fair and balanced way.”
For new transactions made on 1 June or after, Klarna will tell the two credit reference agencies it works with whether your payments were made on time, late or if they went unpaid.
The reporting will be made on the Pay in 30, Pay in 3, in-app shopping and Klarna card products. It already reports any transactions made through its Klarna Financing product.
But while Experian and TransUnion will have your transaction details, your Klarna usage won’t impact your credit score just yet as further updates still need to be made.
Klarna hasn’t confirmed when those transactions will start impacting credit scores though.