Klarna to Start Reporting UK Customer Debts to Credit Agencies | Rating agencies

Buy now, pay later company Klarna will start reporting UK customer debt to credit agencies for the first time next month, which could affect buyers’ credit ratings from 2023.

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

The Swedish finance company, which is BNPL’s main provider in the UK with 16 million customers, will start sharing customer data with the two agencies from June 1, meaning credit card companies will be able to see transactions and debts during formal checks on potential borrowers.

However, debts and repayments will only start affecting customers’ credit scores after 18 months, meaning the change won’t have any formal impact until the end of 2023.

BNPL products, which allow customers to delay or spread the cost of purchases, are not yet regulated in the UK, and new rules for the booming sector may not come into effect until 2023.

But Klarna’s deal, which will involve reporting customer transactions on items such as clothes, food and furniture to the two companies from July, will put pressure on rivals to follow suit. Most major purchase programs, which allow customers to spread costs over six to 36 months, are already reported to credit reporting agencies.

The deals could see some customers shun Klarna and turn to rival BNPL suppliers to hide mounting debts from credit card companies and credit reference agencies.

However, Klarna doesn’t think many customers will be deterred and is instead focusing on how the move will deal a further blow to big banks, as responsible borrowers will be able to build credit scores without taking out low-rate credit cards. high interest.

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Klarna said: “Consumers who make payments on time can establish a positive credit history, showing lenders that they are using credit responsibly.”

Alex Marsh, Director of Klarna UK, said: “It is alarming that UK consumers are still being forced to take out high cost credit cards to demonstrate that they can use credit responsibly and build their credit profile. This will start to change on June 1 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.

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