BUYERS who use Klarna’s buy now, pay later services will see these transactions recorded on their credit reports starting next month.
This means that lenders will be able to see this loan for the first time – and it could prevent you from getting a mortgage or a credit card in some cases.
Klarna will begin reporting buyers’ use of its services to two of the three major credit reference agencies – TransUnion and Experian – from June 1. It estimates that 16 million people use its services.
It comes after a major overhaul of BNPL was announced by a number of credit reference agencies earlier this year.
Credit reference agencies gather information about how you manage credit and make your repayments.
TransUnion said in February it would include information from BNPL on credit reports, while Equifax and Experian said they would also include those details in reports later this year as well.
Currently, when using BNPL services, “summary checks” of eligibility are performed, but this does not show up on buyers’ credit history.
Now, Klarna, one of the largest BNPL companies, has revealed the exact date customers should expect to see transactions recorded on credit files.
It will report all purchases made using its Pay in 3 and Pay in 30 options, as well as via its app or using the Klarna card, to TransUnion and Experian from June 1.
Klarna uses these two credit reference agencies to perform soft credit checks on customers.
This means that while on-time payments will be recorded, any late or unpaid payments will also be listed.
Although Klarna said the upheaval will not immediately impact your credit score, it will soon.
Indeed, Experian and TransUnion need to update their rating mechanisms to reflect these changes.
How it could affect your finances
If you use BNPL services responsibly, it could mean you could use them to boost your credit score – something consumers haven’t been able to do because transactions haven’t been recorded on credit files. .
But experts have warned the upheaval could cost you getting accepted for credit or a loan.
Moneycomms personal finance expert Andrew Hagger said: “If borrowers miss payments and fall into arrears, it could have a real negative impact on their ability to borrow in the future – not just through BNPL, but through credit cards, loans and even mortgages.”
He said the “consequences could be dire” for customers’ credit scores if they failed to repay.
The mere fact of using BNPL’s services could be seen as a red flag by lenders.
Charlotte Nixon, mortgage expert at Quilter, previously told The Sun that banks might see these transactions listed on your credit report and wonder if you have the funds to pay your way.
It might even impact how much lenders are willing to lend you – and they might even reject your loan or credit application in some cases.
This is around eight million adults who owe money on BNPL purchases, with the average debt standing at £538 per person.
But Klarna said recording transactions on credit files should help ensure consumers don’t run into debt with multiple BNPL providers.
Its UK Director, Alex Marsh, said: “We are pleased to help protect our UK customers and continue to build our leadership in responsible lending, now credit reference agencies are able to accept our data. “.
But Resolver consumer expert Martyn James said that might not be the case.
He said: ‘It is not clear that BNPL loans will improve your credit score, as many lenders may consider this to be ‘riskier’ credit when they check your file.
A spokesperson for Experian said: “As with any form of credit, if you manage BNPL arrangements responsibly they can provide a useful way to spread the cost of products and services – if you don’t borrow more that you cannot afford to repay and that you enforce the agreed payments on time and in full.
“Like any other credit, missed payments could result in additional charges and could, over time, affect your creditworthiness in the eyes of other lenders.”
TransUnion has been approached for comment.
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