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If you do any online shopping, then you’ve probably seen buy now, pay later options like Klarna at checkout. BNPL platforms are widely popular and only seem to be gaining steam with over 360 million users worldwide.
Read: What To Do If You Owe Back Taxes to the IRS
Paying by installment isn’t a new concept. Before e-commerce entered the mainstream, you could order things on layaway from magazine catalogs or by calling the number flashing on your TV screen. Apps like Klarna are simply the modern version of this payment method, with wider accessibility and convenient features that make them attractive to millions of people.
If you’re thinking, “This sounds like credit,” you’re not far off from the truth. However, there are some key differences between BNPL platforms and credit cards that may end up affecting your credit score. Keeping reading to explore these factors.
What Is Klarna?
Klarna is one of many companies that offer payment plans for online purchases with no interest. Here’s a basic rundown of how Klarna’s most popular plan — “Pay in 4” — works:
- Users pay 25% of the original item value upon purchase.
- Users pay an additional 25% of the remaining balance every 2 weeks thereafter, paying off the full amount in 6 weeks.
Pay in 4 allows is available to consumers in the U.S. and will allow for payments to be made immediately and in full at checkout wherever Klarna is available.
Where Klarna stands out is its multiple payment plan options. While other BNPL platforms may only offer one method of repayment, Klarna users can choose several payment options, including Pay in 4, Pay in 30 days, Pay Now, or a traditional financing option.
However, be aware that many financing options from other companies will require a hard credit check that can affect your credit score. Klarna, on the other hand, will only perform a soft credit check that will not affect your credit score.
Klarna has gained popularity for a big reason–it doesn’t charge interest. So long as payments for Buy Now, Pay Later purchases are made on time. For late payments, Klarna will still charge a fee and you will be unable to access the app until you’ve paid off your debt.
Does Klarna Build Credit?
Klarna’s interest-free BNPL feature will not report any negative or positive payments to the credit bureaus. That means there would be no impact to your credit score.
What Credit Score Do I Need for Klarna?
There is no minimum credit score needed to qualify for Klarna. It is highly accessible to many users and easy to use, though Klarna will check on each customer’s ability to pay back their purchases.
Each decision to offer a lending feature is made carefully with a strong underwriting process, as a regulated bank. Some of the factors used in decision-making include: the customer’s history of usage with Klarna, credit bureau information and, in some cases, history of income and spending that the customer may share.
It doesn’t mean that every customer’s lending decisions are guaranteed, though. Klarna does emphasize shopping responsibly, so only specific amounts are granted based on the customer’s specific purchase. Klarna reports that most customers pay on time and in full, with low loss rates at less than 1%, providing a way for users to be flexible with their spending without charging any interest.
Key Takeaways
Selecting Buy Now, Pay Later options like Klarna at checkout makes it easy to buy things online if you don’t have all the money upfront or want to spread costs over your budget for the next couple of months.
For users who want flexible, interest-free payments and are worried about racking up debt, making on-time BNPL payments is a useful strategy.
FAQ
Here are the answers to some of the most frequently asked questions about Klarna and your credit score.
- Does Klarna run a credit check?
- If you're looking to use their BNPL services, Klarna will use a soft credit check which won't affect your score.
- What factors will Klarna consider when deciding to approve an initial BNPL transaction?
- The factors that Klarna considers include the transaction amount, previous payment history, and credit bureau information. Your chances also increase if you have accurately input your personal details and shipping address. Each transaction is assessed individually before the decision to offer lending is made.
- Why should I care about my credit score?
- Positive or negative impacts on your credit score can influence your ability to obtain loans for important purchases such as a house, car, or college tuition. If you have a history of late or defaulted credit payments, creditors won't approve you for future loans or may offer plans with high-interest rates.
- Will using Klarna or Afterpay affect my credit score?
- Like Klarna, Afterpay doesn't report on-time or even negative payments to credit agencies, so neither platform will have an impact on credit score.
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Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.
- FinMasters. 2023. "Buy Now Pay Later Statistics: Market Size, Users, Debt (2023)."
