Article by Sam Griffin - 14th December 2020

Why Do I Have Klarna Searches On My Credit Report?

In November 2020, The Times newspaper reported that Klarna – the buy now, pay later finance provider – was performing searches on unsuspecting customers. This seemingly dubious behaviour coincided with a recent BBC report that highlighted Klarna’s ‘misleading’ advertising campaign that failed to mention that customers will face late fees if they miss payment deadlines, despite boasting ‘No interest. No fees. Ever’.

What followed was a great deal of uncertainty from users unsure about Klarna’s practices. According to The Times, Klarna was running searches on their customers’ Credit Reports, ‘even if they pay up front’ for their purchases. This raised the question: why were Klarna checking Credit Reports when no credit was granted?

The claim is contradicted by Klarna’s own website, which specifies that soft credit checks are performed when customers apply for their ‘pay later’ products – where you can either pay in 30 days or in instalments. However further detail can be found in their Privacy Policy – more on this later.

Klarna has become a frequent finance provider for many online stores in recent years, including Adidas, River Island, and Asos to name a few, meaning you’re likely to run into Klarna at some point, even if you aren’t an active credit user. For this reason, it’s important to understand how any searches might affect your Credit Report, and why you might have them in the first place.

What is Klarna and why is it on my Credit Report?

Klarna is a credit provider for a range of online clothing stores, mostly (but not entirely) aimed at younger people.

When you’re at the checkout for any Klarna-affiliated websites, you may be offered to pay for your new clothes in 30 days or spread over instalments – these finance options are the services offered by Klarna.

One of the largest Klarna mysteries is why Klarna was appearing on customers’ Credit Reports, even when they paid upfront, apparently not using any credit whatsoever.

The answer is in Klarna’s Privacy Policy, which explains that you will partake in their credit services should you decide to ‘Pay now’ with a direct debit, which is why a credit search will be performed on you with either Experian or TransUnion (or both). These credit searches will be recorded on your Credit Report, so you can see when Klarna accessed your information.

Klarna explains that they must perform a credit assessment before extending their credit services to ensure that the customer can afford the payment: this includes times when the customer pays up front in full, using a direct debit.

Why would someone use Klarna to pay upfront?

Initially, it seems a bit strange to use a finance provider when paying for clothes in full up front. Why not just pay using your card, as you would with most online transactions?

Klarna claims that their ‘Pay now’ service is designed ‘to be one of the safest online payment systems possible’. This is because, by using Klarna’s ‘Pay now’ service, the merchant does not get access to any of your sensitive card information, and your PIN and TAN are not stored or visible to any third parties, including Klarna, the merchant, or Sofort GmbH (Klarna’s payment provider).

Do Klarna searches affect my Credit Rating?

It’s important to note that there are two main categories of searches: soft searches, which don’t affect your creditworthiness in any way, and hard searches, which can in certain circumstances.

For any purchases made using Klarna’s ‘Pay now’ or ‘Pay in 30 days or instalments’, Klarna will perform a soft search of your Credit Report. This means any searches resulting from these payment options won’t affect your Credit Rating so there is no cause for concern – at least from a creditworthiness perspective.

Soft searches can appear as either ‘enquiry’ or ‘audit’ searches on your Credit Report. Klarna’s website clarifies that ‘a soft credit check does not affect your Credit Score and is strictly between you and Klarna – this is not visible to other lenders’. Any soft searches performed by Klarna will therefore be recorded as an ‘audit’ search, as these are not visible to anyone but yourself and the Credit Reference Agency used.

Klarna does perform hard searches as well, but these are reserved for customers who use their ‘Financing’ service – which involves repayment over a longer period – and these searches involve a thorough check of your complete Credit Report.

If you’d like to know more about soft and hard searches, you can learn more by checking out our earlier article.

How can I remove the searches?

Searches are removed from your Credit Report after different amounts of time, depending on the Credit Reference Agency holding the information.

Searches with Equifax and TransUnion will be removed after two years, while searches with Experian are removed after one year.

Because a credit search from Klarna is a factual record of when they accessed your Credit Report, it isn’t possible to remove it any sooner. That said, if you don’t recognise a search or believe it to be fraudulent, you should contact Klarna so they can investigate for you. They can then advise you specifically on why a search was performed.

Can Klarna affect my Credit Rating at all?

Soft searches from Klarna, like those performed should you use their ‘Pay now’ or ‘Pay in 30 days or instalments’ options, won’t affect your Credit Rating.

Hard searches from Klarna, which are run when you use their long-term financing options, can affect your creditworthiness, but usually only if you already have an abundance of hard searches on your Credit Report.

It’s also important to note that any credit agreements that are paid late may be recorded punitively on your Credit Report with a late payment marker. This means that missing a scheduled monthly payment to Klarna can result in a harmful entry on your Credit Report, which can damage your Credit Score, making it more difficult and expensive to take out further credit.

If you’re unsure how (or if) Klarna has recorded your credit agreements, it’s best to check your Credit Report so you can see the information for yourself.

It’s not all doom and gloom though. A credit agreement – including one from Klarna – can actually help your overall Credit Rating, depending on how the account has been managed. Generally, if the account has been fully paid on time each month, then you can expect it to boost your Credit Score. The older it is, the better.

This is because lenders can look at the account on your Credit Report as evidence of you being a reliable borrower. It’s only when negative information, such as late payments, arrears, or defaults, are recorded that the account will start to hurt your creditworthiness.

How do I check my Credit Report?

You can see who has been performing searches on you by checking your Credit Report. Klarna uses Experian and TransUnion for their credit checking so, if Klarna has searched you within the last two years, it should appear on your reports with these agencies.

You can use checkmyfile to view your Multi Agency Credit Report, which collates your Credit Report information from Equifax, Experian, and TransUnion all onto a single, easy-to-use platform.

All of your searches will appear in the ‘Searches’ section of your Credit Report, detailing the lender name, your searched name and address, and the date that the search was performed.

If you haven’t already, you can save time and gain peace of mind with checkmyfile free for 30 days, then just £14.99 per month, which you can cancel online at any time.

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