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How Does Klarna's Credit Score Work?

Do you need a good credit score for Klarna and how does it work? Does Klarna perform a credit check before approving you? What are the payment options? Read on for answers to these questions and more.
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Buy now pay later (BNPL) is a relatively new way to shop online and in-store. Over the last few years, millions of consumers have used Klarna, Laybuy, and Clearpay to quickly buy the items they want, without having to pay upfront. 

While these services can certainly be used responsibly, there’s a lot of confusion over how they work and whether they can impact your finances in the future. 

For example, do you need a good credit score for Klarna and how does it work? Does Klarna perform a credit check before approving you? What are the payment options? Read on for answers to these questions and more. 

How does Klarna work?

Klarna offers buy now pay later payment plans for online and in-store purchases. 

If you opt to use Klarna, you can take home or order the things you want, even if you don’t have the money for them straight away. You’ll get a choice of payment options with terms ranging from 30-days to three separate payments. 

Some people use Klarna to buy items they need in the lead up to payday, while others use it to try on several items of clothes in different sizes, without having to pay hundreds of pounds and wait for a refund. In this case, you only have to pay for the items you decide to keep.  

If you’re good at managing debt responsibly, Klarna can be a useful way to borrow money without having to pay interest. If you often forget when payments are due or your income is unpredictable, it can lead to debt problems over time. 

Do I need a good credit score for Klarna?

Klarna doesn’t set a minimum credit score to qualify for its finance products. 

However, Klarna may look at your credit report as a whole before making a decision. Klarna’s website says: “When a credit check is performed, we verify your identity using the details you provided and we look at information from your credit report to understand your financial behaviour and evaluate your creditworthiness.”

If you’ve used Klarna before, paying on time can improve your chances of getting approved again. Klarna explains: “History of positive behavior as a Klarna customer can improve your chances of being approved, so ensure to not miss a payment.”

Will using Klarna affect your credit score

Your credit score won't change if you use Klarna. But other lenders can look at your credit file and see things like missed payments, late payments, and unpaid balances.

Whilst using Klarna's buy now pay later payment option, a good history can be built by always making payments on time.

Does Klarna perform a credit check?

Klarna may carry out a credit check before deciding whether to approve your purchase or not.

In some cases, they’ll perform what’s known as a ‘soft’ search. This won’t show up on your credit report and it won’t affect your score. In other cases, they’ll perform a ‘hard’ search. This will affect your score and will be visible to other lenders when they look at your credit file.

Hard searches apply to most types of credit, whether you’re applying for a credit card or a direct lender loan

These credit searches form part of Klarna’s affordability checks. The process is designed to confirm your identity and assess your past financial behaviour. 

The type of credit check that will be carried out will depend on the payment option you choose. 

Klarna Pay In 3 - soft credit search

‘Pay in 3’ allows you to spread the cost of your purchase into 3 interest-free installments. 

The first payment is made when you make your purchase and the remaining instalments are spread 30 days apart from one another. 

A soft credit check will be carried out in this case. It won’t be visible to other lenders and therefore won’t impact your credit score. 

You must make the payments on time. Repeated failed payments could lead to your debt being passed over to a debt collection agency. This is likely to be recorded as a default on your credit report and this could make it more difficult to borrow money in future.

Klarna Pay In 30 Days - soft credit search

‘Pay in 30 days’ lets you receive your order quickly but pay for it up to 30 days later, without any interest or fees. Pay in 30 days involves a soft credit check to ensure affordability, meaning lenders won’t see it when they look at your credit report.

With the help of the Klarna app you can pay off the balance early or extend the due date if necessary. 

When the store ships your order, you’ll get an email from Klarna outlining your payments.

You’ll then be able to see purchases and payment information in the app. Alternatively, you can log into your account on the Klarna website. Downloading the Klarna app could make it easier to stay on top of your account and avoid missing any payments.

Missed payments can damage your credit score and make it harder to get credit in future.

Klarna Financing - hard credit search

Klarna’s ‘Financing’ option is a longer term credit product. A hard credit search will be performed for any shoppers who pass the initial eligibility checks. This will leave a record on your credit report that is visible to lenders. It will also have an impact on your credit score.

Financing is a regulated credit product and is designed for higher value purchases. Klarna says it’s similar to other traditional finance products where, during the application, you must sign a regulated credit agreement.

When you use Klarna’s Financing option, it will share your borrowing details with credit referencing agencies on a monthly basis.

These details will include your outstanding balance, along with any missed payments or special arrangements.

If you pay off the money you owe on time and in full, this should have a positive impact on your credit score. It can also make it easier to obtain personal loans, car finance deals and mortgages in future.

How to improve your credit score for Klarna approval

There are a number of ways to build your credit score and increase your chances of getting approved. It can take a long time to build credit, but with patience and consistency, you can improve your score and boost your chances of borrowing in future.

Pay existing debts on time and in full

If you have any existing debts such as personal loans, credit cards or store cards, make sure you pay them off on time and in full each month. This demonstrates that you’re a responsible borrower and can manage debt well.

Register to vote

Whether you vote or not, registering on the electoral roll can positively influence your credit score. It can also make it easier for lenders to confirm your identity and address.

Klarna vs. Credit Cards

Klarna's interest-free framework without any monthly fees might save you money compared to credit cards.

Klarna makes most of its money from fees that retailers pay them.

In most ways, credit cards and Klarna work in the same way:

  • You can buy something now and pay for it later.

  • If you don't pay on time, it can damage your credit score.

  • Widely accepted as a form of payment.

However, just like a credit card, Klarna will have additional fees if you make late repayments.

These fees may be slightly cheaper in comparison with typical credit cards.

It's also not wise to rely on Klarna to make purchases which otherwise you wouldn't be able to afford.

Don’t apply for several types of credit at once

If you’ve been rejected by Klarna, try not to apply for new forms of credit straight away. Submitting several credit applications in a short space of time can harm your score, especially if you’re rejected. Try to wait another 3 to 6 months before applying again. 

Buy now pay later services may seem confusing, but by weighing up your options and using them responsibly, they can be an affordable way to borrow.

Make sure you’re able to manage your existing expenses and debts before applying for any new lines of credit. Failure to keep up with Klarna payments can harm your credit score.

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