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Does Klarna Build Credit? You Might Be Surprised

The thought of financing a retail purchase with monthly installments and no interest may sound tempting. But do your homework before going down that path.

July 12, 2022

Imagine this: You’ve been approved to use the Klarna app. Now you can buy that trendy pair of $200 shoes by paying a portion of the cost upfront and paying the rest in installments over a few weeks. But before you sign up for Klarna, don’t overlook one important point — how a Klarna financing option might impact your credit history. 

The thought of building credit may not be on your radar now, but building good credit takes time. The earlier you start, the more time you have to increase your credit score. Then, down the line, a good credit score can be helpful when you need a mortgage, credit card or a new car. Lenders look at it to determine if:

  • You’re likely to make your payments on time

  • How much you can afford to pay 

  • What type of interest rate you could qualify for 

Since you’re making monthly payments, you may assume you’re building your credit score. But does Klarna build credit?

Does Klarna build credit?

It depends.

Swedish company Klarna is a popular “buy now, pay later” (BNPL) service. Generally, BNPL services offer consumers the choice to pay for individual purchases in installments. 

There are different payment options. The “Pay in 4” plan is a popular financing option. You make your first payment at point-of-sale and the remainder in three equal interest-free installments. When you opt to make a specific number of payments over the short term, you don’t typically have to pay interest. 

If you make your payments on time, Klarna and other BNPL companies, such as Affirm and Afterpay, don’t report your on-time payments to the credit bureaus. But this could change as BNPL services become more common and build partnerships with more online retailers. 

Equifax, one of the three major credit reporting agencies, set up a process for BNPL companies to report loan data from plans like Klarna’s Pay in 4. There’s a chance that other credit bureaus,  Experian and Transunion, will follow suit.  

Until BNPL providers start reporting to credit bureaus, making on-time payments may not impact your credit score. But if you miss multiple payments, that’s likely to be reported to a credit bureau. Missed payments showing up on your credit report could hurt your credit score.  

When applying for a financing option, such as Klarna’s Pay in 4, Pay in 30 days or monthly financing options, Klarna will perform a soft credit check. If you secure a BNPL loan, a soft credit check isn’t reported to the credit bureaus. This is because BNPL loans aren’t associated with specific credit applications. But if you apply for a Klarna Financing Account, one of Klarna’s payment plans, there’s likely to be a hard credit check

So, does Klarna build credit? For the more popular payment plans, such as Klarna’s Pay in 4 or Pay in 30 days, your credit score may not be impacted. But plans that do a hard credit check could temporarily lower your credit score.

How does Klarna work?

If you're shopping at one of Klarna's online shopping partners or a retail location such as Sephora, Macy's or Bed Bath & Beyond, you can pay with Klarna at check out. If it’s the first time you’re choosing to pay with Klarna, you'll fill out a credit application. If you’re approved, you’ll be able to complete your purchase. 

You can also make a purchase using the Klarna app. The process is similar: 

  1. Apply for financing through the Klarna app 

  2. Choose "Pay with Klarna" as your payment method at checkout and follow the instructions

  3. Choose how you wish to repay funds (Apple Pay, credit card, bank account or debit card)

  4. Use the Klarna card number just like you would a credit card

Be sure that whatever account you link to Klarna contains sufficient funds for repayment.

Does Klarna require a minimum credit score?

Klarna may look at your credit score, but there’s no minimum credit score to qualify for financing. If your credit score is low or you don’t have one, your approval amount may be less than if you had a strong credit rating. 

The application process is relatively simple and quick, which attracts many consumers to the BNPL payment method. Once you submit your application, you're almost immediately approved or denied.  

What are the risks of BNPL plans?

Klarna and other BNPL services are convenient, with simple approval processes and have the potential to be interest-free. But, these services do have some drawbacks. 

Fees and interest charges could add up

You can quickly rack up late fees and other charges if you make late payments. The ease of acquiring BNPL financing also means it’s easy to end up with more debt than you’re prepared to handle. 

Additionally, the interest charges could be high if you opt to use a BNPL loan to finance over a longer timeframe. So, before securing a BNPL loan, make sure you understand all the loan terms and conditions.


Negative impact on your credit score

Missed payments can lower your credit score, especially if you frequently miss them or they’re several months past due.  A low credit score can affect your life — making it harder to secure a mortgage, car loan or credit card.

Spending more than you have

Because you don’t have to pay for an entire item up front, spending more than you can afford can be easy. This could make it difficult to pay off the remaining cost or any other outstanding loans. While the payment plan might seem manageable, it’s important to look closely at how much you’ll need to spend to pay for the item you want.

No consumer protection

According to the Consumer Financial Protection Bureau, BNPL loans don’t offer the dispute protections credit card companies usually provide. That means if you buy something defective, you might not be able to get your money back. And if you wish to return an item you purchased, you may end up paying the installments until the dispute is settled.  

Making purchases without Klarna

Next time you shop, ask yourself these questions before paying with Klarna:

  • How much do you have in outstanding payments from previous Klarna purchases? 

  • Do you have sufficient funds in your bank account to pay off outstanding payments? 

  • If you can pay them off, does Klarna build credit?

If a BNPL tool isn’t the right fit for your purchase, consider these alternatives.

Paying with cash 

While you won’t build credit this way, you wouldn’t be doing it if you used Klarna, anyway. But paying in cash will reduce the risk of spending more than you can afford, and you won’t have to worry about paying late fees.

Paying with a credit card 

If you consistently make your Klarna payments by the due dates, it might seem like a simple way to offset costs for big purchases. But paying with BNPL programs means you’ll miss out on building your credit score. Using a credit card and paying off your balance on time, just like you’ve done with past Klarna purchases, can build your credit score and avoid interest and fees that come with BNPL purchases.

Personal loans

If you have a strong credit score and want to finance a purchase over the longer term, you may want to consider alternative financing options, like a personal loan. 

BNPL tools may seem like a simple solution for large purchases, but if you don’t have the means to pay them off, they’re dangerously similar to credit card debt. 

If you’re carrying credit card debt, consider Tally†. Download the Tally credit card payoff app to help you stay on top of your debt and position yourself to make cash purchases to avoid excess lines of credit.  

To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.