Klarna will report the use of BNPL products and missed payments to UK credit reference agencies in an effort to help establish credit scores and prevent consumers from building up multiple lines of credit.
Image source: Alex Marsh/Klarna
Klarna’s 16 million UK customers will soon see their credit scores affected when using Buy Now Pay Later (BNPL) products.
From June 1, 2022, Klarna will start reporting the use of BNPL products with Experian and Trans Union, two credit reference agencies.
This will allow users to both build their credit history when Klarna purchases are paid on time, as well as impact scores for late payments and unpaid purchases. It will apply to both Klarna Pay in 30 and Pay in 3 orders placed on or after June 1.
Purchases made before June 1 will not be reported; nor will payments for purchases made before June 1.
UK consumer credit ratings will not initially be affected as this requires further updates to the rating mechanisms used by rating agencies; however, this will likely happen later in 2022.
As a result, lenders will have greater visibility into the use of Klarna’s BNPL products by UK buyers, and help improve affordability ratings, the company said in a press release, while preventing consumers to set up several lines of credit.
The government has long aimed to bring buy now, pay later under FCA oversight, a move it announced would go ahead in February 2022 following the review Woolard.
Klarna says it has worked closely with rating agencies in the UK over the past two years to help them update their systems to the point where they are now able to receive and process BNPL data in a fair and balanced manner. .
Previously, BNPL users would have been subject to a soft credit check, but only in some cases was the data released to rating agencies.
“It is alarming that UK consumers are still being forced to take out high-cost credit cards to demonstrate that they can use credit responsibly and build their credit profile,” said Alex Marsh, Director of Klarna UK,
“That will start to change on June 1 this year, as the vast majority of the 16 million UK consumers who make Klarna BNPL payments in full and on time will be able to demonstrate their responsible use of credit to other lenders.”
“We are delighted to help protect our UK customers and continue to build on our leadership in responsible lending, now credit reference agencies are able to accept our data. This was an area of key concern highlighted in the FCA’s Woolard review and we really took to heart Chris Woolard’s advice at the time to “don’t wait for regulations before making changes,” Marsh said.