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Like everyone else during this pandemic, my online shopping has increased.

Whether it has been a pair of shorts or a more expensive item like an inflatable tent, pretty much all of it has been bought online.

This increase in online shopping has led me to come across the ‘buy now pay later’ company Klarna again and again. I’m sure you’ve noticed them popping up as a payment option too.

But should you use Klarna and will Klarna affect your credit score? Let’s take these questions one at a time.

Should I Use Klarna?

Klarna have been in the news recently due to concerns over their buy now, pay later model.

Let’s be honest, ‘Buy Now Pay Later’ isn’t a new idea is it. You can jazz it up and give it a colourful logo if you like, but you still have to pay for an item using credit. You also have to repay the money at a later date.

Hopefully, this repayment will be interest free! If you miss a payment even once and by accident, though, then there’s a good chance it won’t be. With Klarna, if you miss a payment, the company can charge late payment fees and also pursue you via debt collection agencies. 

I can see the appeal of wanting to spread the cost of buying an item. After all, ‘interest free’ does sound appealing. When buying an item on credit these days, however, I always like to come back to the mantra ‘debt is never a problem, as long as you can afford to service it’.

If there’s one thing this pandemic has reminded us, it’s that you never know when your financial position might change. Servicing debt may become a problem in future. 

Klarna Buy Now Pay in 30 Days

What about the Klarna ‘buy now pay in 30 days’ option? Surely this is useful? After all, this means you can buy as many clothes in as many sizes as you like, and only pay for the ones you want to keep. All this without having to wait for money to be credited back to your account for items you’ve returned. That’s ideal, isn’t it? 

I have to agree that waiting for a refund on returned items to credit back to your account for days on end can be extremely annoying. The problem here, though, is that the ability to have more items delivered to your home in more sizes will – 9 times out of 10 – lead to you buying more stuff! 

If you’ve ever wondered how Klarna make money then here’s your answer. Klarna make money by increasing the amount YOU spend with a certain retailer. Klarna then charge the retailer for this privilege via a transaction fee.

Retailers are so confident that you will spend more money when you use Klarna, they are willing to pay a transaction fee to Klarna. Ask yourself, is this good for my wallet or the retailer’s? 

Does Klarna Affect Your Credit Score?

The good news here is that the basic ‘buy now pay in 30 days’ element of Klarna is unlikely to affect your credit score. This is because Klarna only performs a ‘soft search’ on your credit profile.

According to Klarna, there are also no interest or fees to pay on this type of transaction.

Consumers do not enter into any type of credit agreement with Klarna and these transactions do not affect your credit report or score.

Klarna’s ‘financing’ payment option is very different, though. 

To gain acceptance for this type of financing Klarna perform a ‘hard credit check’. This DOES affect your credit score.

If you follow through with this kind of financing and Klarna agrees to lend – and the account is set up and well maintained – then it’s possible that this may positively affect your credit score. This is because it could add to your credit history and show potential lenders that you pay what you owe.

If you decide to back out before the agreement is finalised, though, then this might look like Klarna weren’t happy with what they found and refused to lend, which doesn’t look good to other potential lenders. 

There’s also the chance the you may fail to make a payment on a financing agreement. This would then be reported to credit referencing agencies, negatively affecting your credit score.

Should You Use Klarna? 

Should you use Klarna? Personally, I’d say no. After all, you never know what the future holds and taking on unnecessary debt should be a last resort. 

If you do use Klarna then be sure to never miss a payment. Also, don’t forget that certain aspects of the service could negatively impact your credit score. This is especially true if you end up missing a payment.

What do you think? Should you use Klarna? Let us know in the comments section below.

This blog does not constitute financial advice. If you’re unsure, seek independent financial advice.