Warning for anyone who uses Klarna as experts claim it hits your credit score

BANKS have been urged to change their approach to Klarna as experts claimed the service hits credit scores and impacts the ability to get a mortgage.

The service offers consumers the chance to break payments down into a choice of three methods: 3 interest-free payments, in full or 30 days. 

But one financial advisor said he recently had a client fail their credit score because of 200 Klarna searches.

Another said they had trouble obtaining a mortgage because of the use - although both insist it's the banks who need to change their view.

Klarna insists it only conducts soft searches. It says only repayment behaviour, not searches, is what appears on file. It says its Buy Now Pay Later (BNPL) transactions do not impact a customer's numerical credit score, and that on-time or early repayment can be viewed positively.

A spokesperson also said if “some legacy banks still can’t accept that responsible BNPL use is smart, healthy money management, that says more about them than it does about our customers”.

But Ben Perks, Managing Director at Stourbridge-based Orchard Financial Advisers, warned using the service could have repercussions.

He said: "Klarna could impact your score. But should this be the case? Mortgage lenders currently take a dim view of Klarna usage and this isn’t always justified. 

"Now, it is just a modern shopping method used by savvy spenders. The high street is struggling and people don’t visit shops as they used to, now people shop online and order multiple outfits and sizes. 

"Everything is delivered to your home and then you return what you don’t want. Cash flow savvy shoppers are using Klarna to make bulk orders. Why have £250 leave your account, when you only intend on spending £50?

“Klarna allows this and does so with great ease. Should these savvy shoppers see their mortgage opportunities dwindle? I think the banks need to change their approach and move with the times.” 

Another warned it can be an issue even if you don't miss any payments.

Justin Moy, Managing Director at Chelmsford-based EHF Mortgages, said: "The ease of using Klarna is both its appeal and its downfall for potential mortgage borrowers. 

"You could argue that if you need to pay for goods over 3 monthly payments on a regular basis, could you afford a much higher monthly payment for your mortgage? 

“This is precisely what mortgage underwriters will be considering if you get past the online credit assessment. Multiple credit searches have traditionally been an issue in obtaining a mortgage, even if there are no missed payments. 

"Klarna just adds to the situation - avoid as much as possible.”

Ranald Mitchell, Director at Norwich-based Charwin Mortgages, said the issue must be fixed as Klarna should not be considered reckless by banks.

He said: "Using Klarna isn’t reckless, it’s modern living and it’s how millions shop now. Order five items, keep two, return the rest. But stack up 100+ transactions and suddenly your credit file looks like a warzone. Some clients are failing mortgage credit score because of recurring Klarna searches. 

"Not because they missed payments but because the system panicked. Lenders, credit reference agencies, even the algorithms, they all see this as high-risk behaviour, when it’s often just smart cash-flow management. Credit reference agencies need to catch up. Their scoring models are outdated for the way people shop today. 

“Lenders need to stop treating buy now pay later like payday loans. And retailers should be clearer about the risks. If we don’t fix this, thousands of would-be homeowners will be penalised for spreading a £30 payment over three months. That’s not risk. That’s reality.”

In another instance, a customer had an issue obtaining a mortgage as they had 17 active Klarna accounts.

Jack Tutton, Director at Fareham-based SJ Mortgages said: "Consistently using Klarna is a sure-fire way to impact your ability to get a mortgage. It is far too easy to buy everyday items with Klarna without knowing the impacts of doing so. 

"Recently we had an issue obtaining a mortgage for a client, they had 17 active Klarna accounts and 123 closed accounts over the last 18 months with the amount borrowed being as low as £11. 

“Whilst the client had the money to buy the items they bought, using Klarna was just easy. All the accounts had a severe impact to the clients score, resulting in them not being able to get a mortgage with a high street lender and having to pay a higher rate than perhaps they would have. 

“More needs to be done to raise the implications to using services such as Klarna, it is far too easy for consumers to access this type of credit without fully understanding the impacts that it could have.”

A spokesperson for Klarna said: “After over a decade in the UK, 11 million Brits now use Klarna for a smarter, fairer way to pay. If some legacy banks still can’t accept that responsible BNPL use is smart, healthy money management, that says more about them than it does about our customers.”