The concept of “buy now, pay later” isn't new. Consumers have used credit cards for decades. However, a different type of shopping option has also become available. Klarna, founded in Sweden in 2005, is an online shopping platform that offers several flexible payment options like the popular “Pay in 4.”
Some users like the fact that paying with Klarna allows them to split purchases into four equal payments without using a credit card. The payments are each due two weeks apart. The app has shopping deals even if you don’t use the delayed payment options. Klarna also offers a 30-day payment option and 6–36 month loans financed through WebBank.
Does using Klarna help build credit?
On the positive side, using Klarna to finance a purchase shouldn't have a negative impact on your credit score (as long as you pay on time). Klarna might do a soft credit check when you use the Pay in 4 feature, which doesn’t appear on your credit report.
Klarna won't help customers with a minimal credit history or poor credit history. Klarna doesn't report on-time payments on financed purchases to the credit bureaus. So, even the most exemplary customer doesn’t get a benefit on their credit scores. However, the company might report late or missed payments.
There's a way that using Klarna might help build your credit. If you need to make a larger purchase, you can use Klarna’s interest-free payment option to spread out payments or take a loan.
Putting a large purchase on a credit card can lower your credit score by increasing your credit utilization ratio. As long as you pay on time with Klarna, you can spread out payments with no interest charges, which won’t hurt your credit score.
Klarna might be a useful option for someone who doesn’t quite qualify for a credit card and needs to finance reasonable purchases for a short period of time.
Klarna is similar to Afterpay
You might notice Klarna’s similarities to Afterpay, which also offers a four-installment payment plan with payments due every two weeks. Afterpay, like Klarna, doesn’t charge any interest for the four-payment plan. As long as users pay on time, there aren't any added fees for using Afterpay.
Klarna doesn't report to credit bureaus
Unfortunately for those hoping to build their credit, paying on time for your “Pay in 4” or 30-day purchases doesn’t help your credit at all. Klarna doesn't report on-time payments to credit bureaus like Experian and TransUnion.
Is it safe to use Klarna?
Your data security is important. Klarna says that it protects your bank information from merchant access. Your PIN and other personal details are encrypted.
One potential risk of using Klarna is the temptation to buy things you can’t afford, which is a similar issue with credit cards. “Wish lists” and the rewards program likely encourage buying more than planned.
If you use Klarna responsibly, search for lower prices, and never miss a payment deadline, it might be harmless.