Klarna will become the first company to buy now, pay later to notify credit agencies of buyers’ debts
Buy now, pay later company Klarna has said it will start reporting UK customer debt to credit agencies for the first time in June 2022.
People who use the “Buy now, pay later” program Klarna making purchases online may find that their credit ratings are affected starting in 2023.
The company said it will start reporting UK customer debt to credit agencies for the first time next month, which will impact customers’ financial scores.
Klarna is the first company of its kind to do so, and it is believed the move could persuade similar companies to follow suit.
So what is it Klarnawhat changes is the company making exactly and how will this affect buyers?
Here’s what you need to know.
What is Klarna?
Klarna is a Swedish company that is the leading provider of buy now, pay later in the UK and has 16 million customers.
It allows customers to delay payments for online purchases instead of having to make an upfront payment.
Buyers can have their items immediately, as usual, but they have the choice of spreading the cost of their purchases over three months or delaying payment even longer.
The retailer won’t ask for cash until a later date, which means this way of shopping allows people to shop online and then decide whether they want to keep it or not before paying for it.
It also means that if people decide not to hold onto a purchase, they don’t have to wait for their money to be refunded, and they can also make a purchase before their payday if necessary while waiting for their funds to become available. in their bank account.
What changes has Klarna made?
Klarna said it would start reporting UK customer debt to credit agencies for the first time in June 2022.
Credit agencies will be notified of all customer transactions on items such as clothing, food and furniture.
The decision was reportedly made after two years of talks with credit reference firms Experian and TransUnion.
It’s about buying now, paying later. Companies, including Klarna, have come under fire from some experts and campaigners, who say they should prevent customers from taking on more debt than they can afford.
All Buy Now No Pay Later lenders are reviewed by the Financial Conduct Authority (FCA), but they are not yet regulated.
The government, however, wants to regulate the sector to prevent young buyers from racking up unaffordable debt repayments.
Klarna said it “fully supports” accessibility checks before lending to buyers.
How will the changes affect buyers?
The changes could affect buyers’ credit scores from 2023.
Klarna will start sharing customer data with the two agencies from June 1, meaning credit card companies will be able to see transactions and debts during formal checks on potential borrowers.
However, debts and repayments will only start affecting customers’ credit scores after 18 months, so the change won’t impact buyers until the end of 2023.
What did Klarna say about the changes?
Klarna said the move was positive because it would allow responsible borrowers to build good credit scores without taking out high-interest credit cards.
Alex Marsh, Director of Klarna UK, said: “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.
“That will start to change on June 1 this year, as the vast majority of the 16 million UK consumers who buy Klarna now pay subsequent payments in full and on time will be able to demonstrate their responsible use of credit to other lenders. “