Klarna starts reporting BNPL borrowing to credit reference agencies

Klarna started reporting buy now, pay later borrowing to credit reference agencies in June 2022, in a bid to improve the visibility of shoppers' debt¹. The company reported to Experian and TransUnion from that month².

Buy now, pay later schemes are a form of credit that allow a payment to be spread across multiple instalments, or paid at a later date, interest-free¹. At the time, these short-term interest-free schemes were not regulated by the Financial Conduct Authority, unlike more traditional forms of credit¹.

The change meant existing, late and unpaid Klarna balances became visible on a credit file to other lenders, and mortgage lenders could possibly include the monthly commitments as part of their affordability checks⁴. Klarna borrowing was not factored into credit scores at that point because agencies needed time to update their credit scoring systems, though missed repayments could have a negative impact on a score with others⁴.

Reporting was not universal across the sector. Clearpay did not report to any agencies, so its repayments could not help build or harm a credit score⁴. Which? noted that many other buy now pay later lenders had not followed Klarna's approach, which meant it could have limited effect¹. Some buy now pay later firms only ran soft credit checks, while others such as Clearpay ran no checks at all and instead started shoppers on a low limit that increased with repayments¹.

The reporting began as the Treasury set out plans to strengthen the rules for buy now pay later schemes, including Klarna and Clearpay, as part of its regulation of the sector¹. Under the proposed rules, lenders would need to be approved by the FCA before offering their products to shoppers, and would be required to carry out affordability checks¹. Other forms of short-term interest-free credit, such as that used to pay for dental work or larger items like furniture, would also have to comply¹.

Why it matters for households

For Klarna users, borrowing taken out from June 2022 could appear on an Experian or TransUnion credit report, meaning other lenders and mortgage providers may see existing, late and unpaid balances⁴. Missed repayments could have a negative impact on a credit score with some agencies, even though the borrowing itself was not then factored into scores⁴. Shoppers using providers that did not report, such as Clearpay, would not see their repayments build or harm a credit score⁴.

The wider picture is that buy now pay later borrowing is recorded inconsistently across lenders and agencies, so the effect on any individual credit file depends on which provider they used⁴. Which? has said that with the cost of living rising, the urgent introduction of robust affordability checks is key to protecting consumers from spiralling debt¹.

What happens next

The government said draft legislation would be published towards the end of 2022, followed by secondary legislation by mid-2023, after which the FCA would run a consultation¹. The Treasury first announced its plans to regulate the buy now pay later sector in 2021¹. Under the government's plans, buy now pay later shoppers would also be able to take complaints to the Financial Ombudsman Service, and Section 75 protection would apply to transactions for goods costing between £100 and £30,000, though many buy now pay later orders fall below £100¹.

For more on how this affects borrowing records, see does Klarna affect your credit file? and buy now pay later providers.