Buy now, pay later will soon affect your credit score in the UK

cnbc.com:

Buy now, pay later giant Klarna says it will start reporting data on customers' usage of its products to credit bureaus in the U.K., gearing up for incoming regulations aimed at reining in the sector over fears it is putting young people into debt.

Starting June 1, the Swedish fintech firm will share information on whether Brits paid off an installment loan in time or are falling behind on their payments to TransUnion and Experian, meaning such data will now start to appear on their credit reports. Klarna has around 16 million users in the country.

The move will apply to the firm's «pay in three» and «pay in 30» services, which allow customers to pay down their debt in three months or 30 days, respectively, without accruing interest. Klarna already reports data on longer-term lending agreements ranging from six to 36 months, which do incur interest.

Klarna said customers' credit scores won't immediately be impacted by the change — currently, most BNPL services do not impact a person's credit score. However, after 12 to 18 months, a person's usage of Klarna will appear for lenders when approving a loan or mortgage application. Purchases made before June 1 won't be affected, Klarna said.

The development sets a major precedent for the nascent buy now, pay later, or «BNPL,» sector, which has flourished in no small part thanks to a smoother application process and lack of regulatory oversight. It could deter shoppers from using the company's services, as it will now affect their credit history.

«Credit reporting is a double-edged sword in that it can be used to punish borrowers but also to incentivise and reward healthy financial habits,» Gwera Kiwana, product manager at U.K. fintech consultancy 11:FS, told CNBC.

«Klarna