Klarna to start reporting customer debt to UK credit agencies

Klarna will begin reporting customer debts to credit agencies in the UK from next month, which could have an impact on customer credit ratings.

From 1 June, 2022, the Buy Now Pay Later (BNPL) giant will report UK consumer purchases paid on time, late payments and unpaid purchases for Pay in 30 and Pay in 3 orders to Experian and TransUnion.

Debts and repayments which show up in these checks from June 2022 will begin to affect customer credit score after 18 months, meaning the full impact of the change on credit score will likely be seen late in 2023.

The decision to share this information with credit rating agencies means credit card companies and other lenders will be able to see transaction history and debt as part of formal credit checks.

However, Klarna said the move will also enable its 16 million UK customers to build a positive credit history by using its Buy Now Pay Later products.

The shift comes as the Swedish payments and financial services giant faces increasing scrutiny from MPs and regulators over the impact on customers who cannot afford to pay back their BNPL debt in full.

Klarna’s BNPL products in the UK are interest-free, and have inbuilt controls to 'prevent the accumulation of debt', which the company claims make them a fairer alternative to traditional credit cards.

Alex Marsh, head of Klarna UK, said: “It is alarming that UK consumers are still being forced to take out high cost credit cards to demonstrate they can use credit responsibly and build their credit profile.

“That will start to change on 1 June 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.”

The company said the development should support wider industry efforts to drive better visibility of consumer borrowing and affordability assessments to help ensure consumers are not building up unsustainable debt with multiple providers.

Marsh added: “We are pleased to help protect our UK customers and continue to cement our leadership in responsible lending, now the credit reference agencies are in a position to accept our data.

“This was a key area of concern highlighted in the FCA’s Woolard Review and we very much took to heart the advice from Chris Woolard at the time to, ‘not wait for regulations before making changes’.”

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