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by Marsh Finance on Aug 8, 2024 3:00:00 PM
Online shopping is always changing. With that, how you make payments is changing too. This might cause some distress, but Klarna are here to help. Klarna are revolutionising how you can make payments. At Marsh Finance, we believe in educating our customers about all aspects of financial health. This includes the impact of Klarna on your credit score. We want to make it clear that Marsh Finance is not affiliated with Klarna. This article is purely educational, and not promotional.
What Is Klarna And How Does It Work?
Klarna, a Buy Now Pay Later (BNPL) service. A BNPL offers an alternate payment solution for buying online. Customers have lots of options for paying. You can pay within 30 days, split the cost into instalments, or choose to finance. While the 30-day and instalment plans typically involve a soft credit check, which doesn’t appear on your credit report, the financing option requires a hard credit check and may impact your credit score.
Impact Of Klarna On Your Credit Score
Since June 1, 2022, Klarna has reported all BNPL transactions and finance to credit bureaus. This means that using Klarna can affect your credit score. Making payments quickly can help your score. This is because it shows you are responsible with money. However, missed payments can hurt your score, staying on your record for up to six years.
Improving Your Credit Score With Klarna
Klarna will likely make a soft credit check for short-term payment options. However, if you make your payments, this won't be reported to credit bureaus. Due to this, using BNPL services won't improve your score. However, Klarna’s new reporting policy means that responsible use of their services can now contribute positively to your credit history.
The Risks Of BNPL Services
BNPL services, including Klarna, don’t offer the same protections as credit card transactions. Unlike credit cards, Klarna transactions aren’t covered under Section 75 of the Consumer Credit Act, which provides protection for purchases between £100 and £30,000. Using Buy Now, Pay Later can make you spend too much money. This can be bad for your finances and how banks see you.
Making Smart Financial Decisions
You might be thinking that Klarna is the best option for you. At this point, it is important to consider whether saving up might be a better option. Being able to manage BNPL payments is a good way of becoming responsible with money. However, you must avoid gathering debt that could hurt your credit score. This would obviously hurt your chances of getting car finance in the future.
Your Partner In Car Finance
At Marsh Finance, we are committed to you. Whether you want to improve your credit score or apply for finance, we are here for you. Our tools, like the car finance calculator and our 30-second pre-approval process, make understanding and applying for car finance straightforward and stress-free. Plus, our car marketplace offers a great selection of vehicles. This allows you to find and finance your dream car in one place.
Key Takeaways
Using Klarna can impact your credit score, especially with their recent policy changes. It's true, Klarna can offer flexibility and convenience. However, it's important to use these services responsibly. Remember, maintaining a healthy credit score is crucial, especially when considering car finance. At Marsh Finance, we’re here to support your financial journey every step of the way. 🚗💡📊💳
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