Does Klarna Report to Credit Bureaus and Affect Your Credit Score?
Klarna offers the convenience of biweekly, interest-free payments, but will it help or harm your credit?
Contributing Writer at Tally
August 25, 2022
The credit business is constantly evolving as new financing options offer financial flexibility. For example, the demand for more payment flexibility without incurring fees or interest charges resulted in the arrival of buy-now-pay-later (BNPL) services.
These BNPL services offer short-term loans — typically a handful of weeks — without charging the buyer interest. They break the payments up into weekly or biweekly installments, allowing shoppers to spread out larger purchases without an immediate impact on their bank account.
Klarna is a popular BNPL service that offers several financing options. A common question among Klarna users is, “Does Klarna report to credit bureaus?” Below, we outline:
If and when Klarna reports to credit bureaus
How Klarna can impact your credit score
Klarna alternatives and more
What is Klarna?
Klarna offers short-term point-of-sale (POS) financing, a financing option at checkout online. Its primary business is pay-in-four financing, allowing repayment in four equal, biweekly payments. If you have a $100 purchase, you will make your first payment of $25 upfront; then, you’d pay $25 in two weeks, $25 in four weeks, and the final $25 in the sixth week. The biggest benefit is interest-free financing.
The Klarna app allows users to bring the pay-in-four option to participating brick-and-mortar stores by creating a digital card you can use, like a credit card or debit card. It also offers the Klarna Visa credit card that allows you to split any purchase at any retailer into four interest-free installments. Unlike most credit cards, which require hard credit checks, the Klarna card only requires a soft credit check.
The card is free for 12 months, then $3.99 monthly to keep it active.
Does Klarna offer other buy-now-pay-later (BNPL) financing?
Klarna offers monthly financing for larger purchases through a more traditional lender, WebBank.
The monthly financing option appears as a payment method during online checkout. However, instead of offering the interest-free pay-in-four option, the financing option offers a range of timelines and interest rates. Choose the timeline and interest rate that suits you, complete the online application — this will perform a hard credit inquiry — and finalize your purchase if approved.
Sometimes, the charge will go to your Klarna financing account, but other times Klarna will create a temporary one-time-use credit card to complete your purchase. It depends on the retailer.
The interest rates range from 0% to 19.99%.
Does Klarna report to credit bureaus?
Yes and no — it depends on which Klarna service you opt for.
If you choose the four-payment or 30-day try-and-buy payment options, Klarna reports nothing to the credit bureaus. This includes your payments and the credit inquiry, as Klarna only performs a soft credit inquiry — only hard credit inquiries impact your credit score.
However, if you apply for a Klarna financing account offered in partnership with WebBank, Klarna performs a hard credit inquiry via two major credit bureaus — Experian and TransUnion. This hard credit inquiry will appear on your credit report and potentially impact your credit history and score.
Though it performs a hard inquiry to approve you for a Klarna financing account, Klarna doesn't report your monthly payments, balance or credit limit to the credit bureaus. Because Klarna doesn’t report on-time payment history to the credit bureaus either, it isn’t a good option to help you build credit.
Because the Klarna financing account requires a hard credit inquiry, it can result in a five-point drop in your credit score. And since it doesn’t report your on-time payments to the credit bureaus, there is no positive rebound you’d potentially see from a traditional loan or even a credit card.
Also, keep in mind that Klarna may also indirectly affect your credit. If you pay your Klarnainstallments with a credit card but cannot pay your credit card balance, your credit score can be negatively impacted.
Does Klarna charge a late fee?
While a late payment to Klarna won’t impact your credit, Klarna may charge you a late fee. If you’re on the four-installment payment plan and you’re 10 or more days late on a payment, Klarna will charge up to a $7 late fee. This late fee will never exceed 25% of your payment amount.
If you’re on a Klarna financing plan or the monthly financing plan and pay late, Klarna may charge you a $35 late payment fee.
What are the alternatives to Klarna?
Klarna isn’t the only BNPL provider today. Let’s look at a few Klarna alternatives and what they offer.
Like Klarna, Afterpay offers a four-installment, interest-free payment plan over six weeks with no impact to your credit file. It also has an app that creates a digital credit card you can use at participating physical retailers. However, Afterpay doesn’t currently offer a major credit card, nor does it offer extended financing terms like Klarna monthly financing.
Affirm is another BNPL service with a four-installment biweekly interest-free payment plan. Like Klarna, this payment plan has no impact on your credit score unless you are delinquent. Affirm also offers longer financing terms, like Klarna. These will require a hard credit check. Unlike Klarna, Affirm may report your payment history to Experian.
Affirm also has a digital credit card for in-store use via its smartphone app.
In addition, Affirm offers a debit card you can link to your bank account. When you make a purchase using the Affirm Debit+ card, you can choose to pay the entire balance upfront or split it into four biweekly payments. You have 24 hours to initiate the payment split if you choose, and you can only split transactions between $100 and $700.
0% APR credit card
Some credit card companies offer an introductory 0% APR for a specific period — typically six to 12 months. Using this instead of a BNPL service will not only give you a longer period of interest-free financing, but you only make one payment per month, and the on-time payments may positively impact your credit score.
However, these offers are only temporary. So, you must use it during the promotional period or lose it. With a BNPL service, you can always access the 0% interest option.
Saving for larger purchases
Instead of going into debt by spending cash you don’t have via a BNPL service; you can save for large purchases and pay the total cost in cash. Adjust your monthly spending to create a budgetary surplus and place that cash in a savings account. Once you’ve saved enough to make the purchase, use that cash to pay it off.
In some cases, Klarna will report to credit bureaus
While Klarna’s monthly financing option requires a hard credit check, which will appear on your credit report, it doesn’t report ongoing on-time payments. This means it doesn’t help you build credit, though the initial hard credit check could cause your score to fall by five points or less.
Klarna’s staple four-installment, interest-free payment plans require only a soft credit check, so there’s no impact to your credit score. But like the monthly financing option, Klarna doesn’t report on-time payments on the four-installment plan to the credit bureaus.
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