Buy now, pay later, Klarna will start accounting for UK creditors ‘debts for the first time next month, in a move that could affect buyers’ credit ratings from 2023.
The move is thought to be the result of two years of talks with credit bureaus Experian and TransUnion and comes as a buy now, pay later (BNPL) companies face pressure from lawmakers and activists who say they should block customers to take on more debt than they can afford.
The Swedish financial company, which is the UK’s leading provider of BNPLs with 16 million customers, will start sharing customer data with the two agencies from June 1, which means that credit card companies will be able to see transactions and debts when they make official checks on potential borrowers.
However, debts and payments will start to affect customers’ credit ratings only after 18 months, which means that the change will not have any formal impact until the end of 2023.
BNPL products that allow customers to delay or spread the cost of purchases are not yet regulated in the UK and the new rules for the thriving sector may not come into force until 2023.
But Klarna’s agreement, which will mean reporting customer transactions with items such as clothing, food and furniture from the two companies since July, will put pressure on competitors to follow suit. Most large purchasing schemes that allow customers to spread the cost over six to 36 months have already been reported to credit bureaus.
The agreements may lead some customers to avoid Klarna and turn to rival BNPL providers to hide growing debts from credit card companies and credit bureaus.
However, Clarna does not believe that many customers will be deterred and instead focuses on how this move will deal an additional blow to large banks, as responsible borrowers will be able to build a credit rating without withdrawing high-interest credit cards.
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Clarna said: “Consumers who make timely payments can build a positive credit history by showing creditors that they use credit responsibly.
Alex Marsh, head of Klarna UK, said: “It is worrying that consumers in the UK are still being forced to withdraw expensive credit cards to demonstrate that they can use credit responsibly and build their credit profile. This will start to change on 1 June this year, as the vast majority of the 16 million consumers in the UK who make payments to Klarna BNPL in full and on time will be able to demonstrate their responsible use of credit to other creditors.
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