Klarna to start reporting customer debts to credit agencies

Buy now, pay later (BNPL) specialist, Klarna has announced that it will start reporting UK customer debts to credit agencies for the first time next month, in a move that could affect shoppers’ credit ratings from 2023.

The move is understood to be the result of two years of talks with the credit reference companies Experian and TransUnion, and comes as buy now, pay later (BNPL) firms face pressure from MPs and campaigners who say they should prevent customers from taking on more debt than they can afford.

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 1st 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.”

Klarna says it will report UK consumer purchases paid on time, late payments and unpaid purchases for Pay in 30 and Pay in 3 orders made on or after 1st June, 2022 to both Experian and TransUnion. As part of Klarna’s long-standing commitment to its consumers’ financial wellbeing, this will give the financial industry greater visibility on UK shoppers’ use of Klarna’s BNPL products, help to improve affordability assessments, and means Klarna consumers who make payments on time can build a positive credit history, showing lenders they use credit responsibly.

Klarna says its has long championed greater visibility on the use of BNPL products in the UK, alongside other products they may use, as key to supporting better outcomes for consumers. However, the UK’s credit reporting infrastructure was built with traditional credit in mind, so Klarna has partnered closely with the CRAs in the UK over the past two years to help them update their systems to the point where they are now able to receive and process BNPL data in a fair and balanced way.

Whilst reporting on the use of BNPL products will be reflected in UK consumer credit files from June 2022, they will not initially impact UK consumer credit scores as this requires further updates to the scoring mechanisms used by the CRAs; however, it is an important step towards this goal which both Experian and TransUnion are fully committed to progressing during 2022. Klarna will continue to ensure that consumer needs are central to everything decided throughout this process. 

Klarna says that this development should support wider 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 continued “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.”