Does Klarna affect your credit score?

Buy now, pay later lets you spread the cost of buying goods which is great in theory – but how does Klarna affect your credit score? And how do Clearpay and other BNPL providers compare? It’s vital you know before you’re tempted to use them at the checkout because if you do it wrong, Buy now, pay later credit can affect your credit score – and your chances of getting a mortgage. Here’s how.

Angela Kerr Director, Editor

How does Buy now, pay later work?

With Buy now, pay later, instead of paying a retailer for goods in full at the till or online checkout, the Buy now, pay later credit provider pays the retailer for you. And then you’ll pay the Buy now, pay later, provider – interest free – over a number of regular instalments. Or pay it off as a lump sum at a later date. It’s also known as “point of sale credit”.

Each scheme is different; some give you 30 days to pay while others allow you up to 12 months. There are potential benefits; it could mean you can avoid going into your overdraft. And unlike most credit cards or store cards, Buy now, pay later schemes don’t charge interest. Plus, the approval process is almost instant when you get to checkout.

Buy now, pay later has become very popular: in fact half of UK adults have used BNPL services at some point, according to research by Finder. This is up from 36% at the start of 2023.

However, there are pitfalls to beware of, in particular relating to your credit score. Read on for more on these.

What are the main Buy now, pay later credit providers?

The main providers of Buy now, pay later credit are: 

• Klarna: it works with thousands of retailers including ASOS, Superdry and Samsung
• Clearpay: available at retailers including John Lewis, Monsoon and Boohoo.
• PayPal Pay in 3: retailers you can use it with include M&S and Boots.

A number of other BNPL providers are available. However, Laybuy, which was a major BNLP provider, went into administration in June 2024. You can find more details here.

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Does Buy now, pay later affect my credit score?

One factor that determines whether using Buy now, pay later affects your credit score is whether or not the BNPL provider shares your spending data with credit reference agencies.

• Klarna: Klarna shares data about your payments with credit reference agencies Experian and Transunion. It says that ‘borrowing more than you can afford or paying late may negatively impact your financial status and ability to obtain credit, including with Klarna’. It says that information such as payment holidays and existing, late and unpaid balances will be visible on your credit file to other lenders. However, it also says that making repayments on time consistently will help build a positive credit history. The BNPL provider also flags that mortgage lenders could include your monthly Buy Now Pay Later commitments as part of their affordability checks.
• Clearpay: It doesn’t report to credit reference agencies. But if you miss payments and your debt is passed to a debt collection agency, this is likely to have a very negative impact on your credit score – read on to find out more.
• PayPal Pay in 3: PayPal says that applying for Pay in 3 won’t impact your credit score. However, PayPal says, ‘we do share some data on your repayment history with Transunion. Although it does not impact your credit score, this data will be visible to other companies and may impact your ability to obtain credit from other lenders and the cost of accessing it’.

WARNING: Beware of missed payments damaging credit scores

If your Buy now, pay later credit provider reports your repayment data to a credit reference agency and you miss a payment then it will show on your credit report. But even if your provider doesn’t report your details to credit reference agencies there can also be consequences for your credit score. If you don’t pay back money you owe to a Buy now, pay later credit provider, it may pass your account to a debt collection agency to try to get the money back.

Credit checks undertaken by debt collection agencies have a particularly negative impact on your credit score. And debt collection agencies can also mark defaults on your credit file. These can have a major impact on your credit score and your chances of being approved for credit for up to six years.

This is not a small-scale problem. In 2021 Citizens Advice warned one in 10 shoppers who use Buy now, pay later services have been chased by debt collectors. Additionally, if you don’t pay on time you may be charged fees too.

Does using Klarna affect your chances of getting a mortgage? And Clearpay and PayPal in 3?

When you apply for a mortgage, the lender will ask one or more of the credit reference agencies – the main ones are Experian, Equifax and TransUnion – to look into your financial history to help them make a decision. Having a good credit score increases your chances of a successful mortgage application – but a bad credit score can mean a rejected application, or more expensive mortgage rates.

If you miss Buy now, pay later payments and this is flagged on your credit report this will be a red flag to lenders. However, if you use a Buy now, pay later scheme that doesn’t report to credit reference agencies, it doesn’t mean a mortgage lender considering your application won’t know you have been using the schemes.

Lenders may look for Buy now, pay later commitments when analysing the bank statements you have to submit when applying for a mortgage. So, your borrowing may be picked up even if it isn’t on your credit report.

Lenders are typically less concerned if you use Buy now, pay later for smaller items. However, if the borrowing falls into the category of an ongoing financial commitment it is likely to be taken more seriously. So those new trainers you defer payment on for 30 days, interest-free is unlikely to be of much concern if you make your payments on time. However, a larger purchase spread between six payments would be seen as a financial commitment that would impact your disposable income each month assuming you are still repaying it when you apply for a mortgage. Read our guide How to make a successful mortgage application

If you’re looking for a mortgage with bad credit it’s a good idea to get expert advice. Award-winning mortgage brokers L&C are fee free and will run through the options for you and talk through the costs involved.

Will I be credit checked if I apply for Buy now pay later?

Klarna, Clearpay and PayPal Pay in 3, will run a ‘soft’ credit check on you if you want to use their BNPL services. Other lenders can’t see soft searches and they have no impact on your credit score or future credit applications you make.

Debt dangers of Buy now, pay later schemes

Don’t allow the attractions of Buy now, pay later schemes persuade you to spend more than you would have otherwise. Doing so is common – research has shown that two fifths of shoppers admitted they spend more when using Buy now, pay later schemes than they usually would. While over half felt using the schemes had contributed to increased levels of personal debt.

How to use Klarna, Clearpay and PayPal Pay in 3 safely

If you do want to take advantage of Buy now, pay later schemes, make sure you do it safely. It’s a good idea to:

• Set your spending limit: It can be easy to lose track of what you spend, especially if you use multiple providers. Ensure you set a spending limit so you stay in control.
• Use payment reminders: Set reminders to inform you when you need to make your repayments.
• Ask for help: if you’re having difficulties making repayments, contact the company. They may be able to offer you an alternative arrangement.

Ways to protect your credit score

Here are some ways to protect your credit score, from using Buy now, pay later schemes carefully to cutting financial ties with previous partners….

• Make your Buy now, pay later repayments on time. If you use Buy now, pay later sensibly it could improve your credit score, assuming you use a Buy now, pay later scheme that reports to credit reference agencies – and crucially by repaying on time. It means that you are demonstrating that you are a reliable borrower.
• Cut all ties. If you’ve had any finance agreements with an ex-partner, whether a mortgage, a loan or even just shared bills, their credit history can be considered when determining your score. Make sure you inform the credit reference agencies that you’re no longer together by asking for a ‘notice of disassociation’.
• Check your credit reports. The best way to understand your credit report is to see it for yourself. You can request your report from the three credit referencing agencies (Experian, Equifax and TransUnion). You can do this online for free. Check your reports regularly and especially before you make any significant applications for credit. Knowing what your rating is with each agency will give you a great benchmark for improvement.
• Only apply for a credit card if you know you’ll be accepted. If a lender sees you’ve applied for multiple cards over a short period of time (i.e. if you’re trying to get a credit card to spread the cost of Christmas) you’re going to look a little bit irresponsible and, perhaps even, desperate. Check you’re eligible for the card before applying
• Don’t apply for too many store cards. Let’s be honest, it’s certainly tempting. But too many credit searches will not go down favourably with lenders.
• Watch out for scams. If a scammer gets your financial details, not only can they take your money they can also make applications for credit in your name and damage your credit score in the process. Be careful when shopping online. ClearScore advises sticking to websites you trust, watching out for emails from big brands that have grammar or spelling mistakes and strange website addresses.
• Stay on top of bills. Make sure you don’t miss any bills or payments by setting up direct debits wherever possible.

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