Does Klarna affect your credit score?

Klarna is a Buy Now Pay Later scheme, which can help to spread the cost of purchases. But how much do you know about it? 

Klarna’s partnered with a wide range of high-street retailers to offer interest-free and fee-free payment options. You can use it in-store or online and if your retailer of choice doesn’t offer Klarna, you can still use it via the app. We’ve looked into using Klarna and how it might be affecting your credit score. 

Does Klarna perform a hard or soft search to check eligibility? 

When you make an application to use Klarna it will check your credit record. Which payment option you want will determine whether it leaves a footprint on your credit report. There are currently four payment options for you to choose from: 

Pay now 

Klarna's latest option gives shoppers the opportunity to pay for their purchases in full at the time of buying. This addition came into effect in October 2021 as a means of "driving up standards" within the buy now pay later sector.  

Pay in 3 = soft search 

Paying in three instalments with Klarna allows you to split purchases into three payments and spread the cost interest-free. The first payment is made at the time of purchase, or when the goods are shipped, and the remaining payments are taken every 30 days after that. It’s possible to pay off the balance early if you can afford to. This option performs a soft search on your credit file, so your score won’t be affected. 

Pay in 30 days = soft search 

The 'pay in 30 days' option is for those who want to buy various items to try them on for size, but don’t want to have their money tied up in the meantime. Take your purchases home and only pay for what you keep. You’ll receive the statement after 30 days so make sure you’ve returned any unwanted items by then, or you’ll be charged for those too. This option also performs a soft search on your credit file. 

Financing = hard search 

For larger purchases, Klarna now offers a financing option that gives you credit from six months up to three years. You’ll have to sign a credit agreement when you take out this option, and Klarna will do a hard search on your credit file. This means that other lenders will be able to see that you’ve taken out finance when searching your file, and it could cause your credit score to temporarily dip. 

Find out the difference between soft and hard searches. 

Where can I use Klarna? 

You can use Klarna at many retailers including H&M, Stradivarius, Fatface and Coach. Non-fashion retailers that accept Klarna include MSpa, Lush Cosmetics, Microsoft, and Sweaty Betty. 

See the full list of retailers here. 

Does Klarna affect my credit score? 

It depends on the payment plan you use and if you pay it off in full and on time. Only the longer-term finance option will leave a footprint on your credit score to start with.  

For the “Pay in 3” and “Pay in 30” plans”, Klarna claims not to send details of missed payments to the Credit Reference Agencies (CRA). But if you consistently fail to make payments, they could pass your details on to a debt management company and this will show up on your credit report. However, if you miss a payment on the longer-term finance plan then this will be reported to the CRAs and will stay on your credit report for 6 years. 

If you default on any of the payment plans, this will also stay on your credit record for six years and could affect your ability to get finance in the future.

With Klarna, and any other type of credit, it’s always best to pay your balance off on time to avoid any issues that could affect your future creditworthiness. 

Read the warnings about Klarna, and other Buy Now, Pay Later schemes. 

Why am I not eligible for Klarna? 

Despite the simplicity of the application process, not every application is approved. The automated system is designed to “support responsible, ethical, and sensible spending habits”, and they can reject an application if it’s deemed unsuitable. Although they’ll access your credit file as part of the application, other factors are also used to reach a decision. For example, they’ll look at whether you’ve previously had credit with Klarna and how you handled it, and whether you currently have credit with Klarna and how much it is. 

To improve your chances of being accepted: 

• pay off any existing borrowing regularly and on time 
• pay off any existing Klarna credit 
• reduce the amount you want to borrow 
• connect your bank account to Klarna 
• don’t try to make too many purchases in a short amount of time. 

Is Klarna safe? 

Although Klarna markets itself as one of the safest ways to shop online, you should be aware that Klarna (and all Buy Now, Pay Later schemes) aren’t afforded the same type of protection as you’d get if you made the purchase on a credit card. 

It’s also worth noting that the latest ‘pay now’ function does not afford customers the same level of protection as you’d get if you paid for an item with your credit or debit card. That’s because your Klarna account is linked to your choice of card, which is not covered under Section 75 of the Consumer Credit Act because Klarna is classed as a ‘third-party payment processor’. 

So, if you can afford to pay for an item outright, it’s better to do so on your debit or credit card so that you’re still protected if you don’t receive the goods or services you paid for. 

Buying on a credit card automatically gives you consumer protection that includes help to get your money back if the product is faulty or never arrives. Klarna does have its own consumer protection policy but this isn’t backed up by the law so help isn’t guaranteed if you need it.  

For larger purchases, it’s worth considering other payment options instead, such as a personal loan, for example.