Does Klarna Affect Your Credit Score?

What Is Klarna?

Klarna is a financial technology company that gives shoppers flexible ways to pay over time. Rather than requiring full payment upfront, Klarna lets you choose from several short-term and long-term options, depending on the type of purchase and your eligibility.

When you choose Klarna at checkout, you’re typically offered one of several payment options:

• Pay in 4: Split your purchase into four equal, interest-free payments, paid every two weeks. This option does not get reported to the credit bureaus and typically involves only a soft credit check. (We’ll explain “soft” credit checks in a minute. Keep reading!)
• Pay in 30 Days: Get your item now and pay the full amount in 30 days. Like Pay in 4, this option does not appear on your credit report unless payments are missed.
• Financing Plans: Choose monthly payments over 6, 12, or even 36 months. These longer-term options may involve interest, a hard credit inquiry, and reporting to the credit bureaus.

Does Klarna Affect Your Credit Score?

Klarna can affect your credit score in two main ways: 1) through a hard inquiry; and 2) through an installment account that is reported to the credit bureaus. Let’s start by taking a look at this question: Does Klarna affect your credit score through credit checks, also known as credit inquiries?

Hard Inquiries Versus Soft Inquiries

A credit inquiry is exactly what it sounds like: someone is requesting information about your credit score. This is also known as “pulling” your credit report. Inquiries account for about 10 percent of your credit score, so they matter—but not as much as things like payment history or amounts owed.

There are two types of credit inquiries: soft inquiries and hard inquiries.

A soft inquiry, or soft pull, occurs when someone reviews your credit report for reasons unrelated to a new credit application. This includes checking your own score, getting prequalified, or using certain buy now, pay later services. Unlike hard inquiries, soft pulls do not affect your credit score in any way.

A hard inquiry happens when you apply for a new credit account, like a credit card or loan. This type of inquiry can cause a small drop in your credit score, especially if your credit history is limited. The reason? Credit bureaus view hard as a possible red flag that you might be preparing to take on too much debt or struggling to pay your bills.

However, people can often worry too much about inquiries. The impact of a hard inquiry is usually temporary. Most people see their score rebound within a few months, as long as they make payments on time and keep their balances low. Also, credit scoring models group similar inquiries (like those made while rate shopping for a car or home loan) into a single event if they occur within a 14- to 45-day period.

Hard inquiries affect your score for about one year, but they remain on your credit report for two years.

Klarna and Credit Inquiries

Klarna may perform a soft or hard inquiry depending on the payment option you choose. Their short-term products like Pay in 4 and Pay in 30 Days typically involve only a soft pull and are not reported to credit bureaus unless payments are missed.

But if you choose one of Klarna’s longer-term financing plans, a hard inquiry is likely, and the loan may be reported to the credit bureaus.

Klarna and Installment Accounts

When evaluating whether Klarna affects your credit score, it’s important to understand that Klarna’s financing plans can show up as installment accounts on your credit report. When you use Klarna’s financing options (not its Pay in 4 or 30 Days), the account shows up as an installment account on your credit report. This isn’t necessarily a bad thing: Installment accounts can help your credit score if you make payments on time because they add to your credit mix and strengthen your payment history.

That said, having too many installment accounts can hurt your score, especially at first. This is because it signals to the credit bureaus that you might be over-leveraged and in danger of being unable to pay your bills. Having a high balance-to-loan amount ratio can also be damaging to your score, but the longer you pay down your balance, the more your score will improve.

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Be Careful!

These buy now, pay later tools can make it easy to overextend yourself. Taking on too many installment accounts—or borrowing more than you can comfortably repay—can lead to missed payments and rising debt, both of which can hurt your credit.

Klarna also notes that it may report missed payments for certain short-term products if they are not resolved in a timely manner, including the Pay in 4 and 30 Days options. So even if your plan started with a soft inquiry, it could still end up affecting your credit if payments go unpaid.

Pros and Cons of Using Klarna

Whether Klarna is a smart choice really depends on why you’re using it. Some people turn to buy now, pay later options to spread out the cost of a big purchase without interest. Others use it to manage cash flow when money is tight. Whatever your reason, it’s worth looking at the potential benefits—and the trade-offs. Here are some of the main pros and cons to consider.

Klarna Pros

1. Interest-Free Payments: Most of Klarna’s short-term options (like Pay in 4) come with no interest, making them a great alternative to credit cards that charge double-digit APRs.
2. Instant Approval: Approval decisions are made quickly, often in seconds. You don’t need a high credit score to qualify for the Pay in 4 or Pay in 30 Days
3. No Upfront Cost: You get the product right away and pay over time, which can help with cash flow.
4. Widely Accepted: Klarna is integrated with many well-known retailers, from fashion and electronics to home goods and travel.

Klarna Cons

While Klarna can be convenient, there are also some downsides:

1. Not All Plans Are Interest-Free: Some long-term financing options charge interest, and APRs can be high depending on your credit profile.
2. Temptation to Overspend: Splitting payments into smaller chunks can make purchases feel more affordable than they really are. This can lead to overspendingand accumulating debt.
3. Late Fees: If you miss a payment, Klarna may charge late fees. While they are usually small, repeated missed payments can add up.

Potential Impact on Credit Score

Does Klarna affect your credit score? That depends, so let’s recap what we have learned in this article:

• A hard inquiry for a financing option will hurt your credit score, but only briefly, and only by a few points, assuming that all of your other credit behavior is positive.
• A soft inquiry for a shorter plan, like Klarna’s 30 Days or Pay in 4, will not hurt your credit score.
• A missed payment, regardless of your plan, will likely hurt your credit score.
• The installment account added to your credit report when you use Klarna’s financing plan can help your credit score as long, especially as you pay your debt down. However, if you have too many installment accounts, your credit score could suffer because the credit-scoring bureaus might think you are in danger of having too many financial obligations.

So in short: Does Klarna affect your credit score? The answer depends on the plan you choose and how well you manage your payments.

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