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Does Klarna affect credit score?

Written byKoyo Loans
Last Updated26th October 2022
Contents
  • In 30 seconds…
  • Introduction
  • Does Klarna affect credit score?  
  • Does overdraft affect credit score?
  • Does Clearpay affect credit score?
  • Does PayPal credit affect credit score?
  • Does Universal Credit affect credit score?
  • Does gambling affect credit score?
  • Does Monzo affect credit score?
  • Does PayPal affect credit score?
  • Does Experian affect credit score?
  • Conclusion

In 30 seconds…

There are lots of different ways to pay for products and services, some of which affect your credit score. The likes of Klarna, Clearpay, Monzo, and PayPal can all influence your credit score, but it really depends on how you use them. Equally, using an overdraft from your bank to pay for goods or services will have an impact on your credit score, so it’s important to bear this in mind. Essentially, when you borrow money to pay for something, your credit score will be affected in some way, no matter the form of credit you apply for.

Introduction

In the UK, there are lots of financial products and services available to us, many of which affect our credit scores. That being said, not every financial transaction you make will appear on your credit file. With that in mind, we take a look at some of the most popular financial products and services in the UK, and explain whether or not they will affect your credit score.

Does Klarna affect credit score?  

Using Klarna might affect your credit score, and it depends on how you use it. For instance, Klarna does not affect your score when you choose to pay in three or pay in thirty days, which are two of the most popular payment options. 

Your credit score also won’t be affected if you create a Klarna one-time card. These payment methods don’t influence your credit score because Klarna does not perform a hard check on your credit file, meaning it won’t appear to other lenders. However, if you apply for one of Klarna’s financing options or take out a standard payment holiday, your credit score might be affected. 

If you opt for Klarna financing, they may perform a hard credit check with one of the UK’s three credit agencies before approving your application. As such, it will appear on your credit file and will indicate to other lenders that you have applied for credit. This, in turn, can cause a dip in your credit score, particularly if you have applied for multiple forms of credit in a short period of time.

Does overdraft affect credit score?

An overdraft that you have arranged with your bank or building society is unlikely to have a significant impact on your credit score. However, you need to make sure that you don’t go beyond your permitted limit. 

In fact, if you use your overdraft responsibly and pay it off regularly, it can actually help your credit score as it’s an indication that you’re sensible with your repayments. So, provided you arrange it with your bank in advance, there’s no harm at all in dipping in and out of an overdraft from time to time if you regularly pay it off. 

On the other hand, an unauthorised overdraft can be damaging to your credit score, and it can also be expensive. Even though you haven’t arranged it in advance, your bank may permit you to go into an unauthorised overdraft for a specific amount of time each month. However, you will find that the charges are usually extremely high, and if you spend too much time in an unauthorised overdraft, your credit score might be negatively impacted as a result. 

Does Clearpay affect credit score?

Shopping online and paying with Clearpay can affect your credit score. It’s a buy now, pay later scheme that has emerged as an attractive proposition to some online shoppers who are looking to spread the cost of a purchase out over a specific period of time. 

The good news is that Clearpay doesn’t perform a hard credit check when considering your application, meaning it won’t show up on your credit file. This is good news because too many hard checks in a short period of time are damaging to your credit score. So, if you adhere to the terms and conditions of your Clearpay payment plan and don’t miss any repayments, your credit score shouldn’t take a hit. 

The issues come when you regularly miss payments or default on the credit agreement. Missed repayments are one of the most damaging things for your credit score, so make sure you can afford any buy now, pay later arrangement that you sign up for. So, as is the case with any loan, make sure you’re able to meet the repayments on your Clearpay deal before signing up for this payment method.

Does PayPal credit affect credit score?

Using PayPal can affect your credit score, particularly if you apply for PayPal Credit. Launched in 2016, PayPal Credit acts similarly to a credit card, and once approved, you can use it to buy a range of products and services that accept PayPal as a payment option. 

PayPal Credit is popular because it comes with competitive terms and offers users the chance to pay off purchases under £99 in six months without having to pay interest. You can apply for PayPal Credit through your account dashboard, but you should be mindful that PayPal performs a hard check into your credit history, which is logged on your file. 

The hard check is conducted by PayPal’s banking partner, Synchrony Bank, and it will appear on your file for up to two years. While your score might drop a few points following the application, provided you meet the stipulated repayments and don’t exceed your credit limit, applying for PayPal Credit shouldn’t have a long-term negative impact on your credit score. 

Does Universal Credit affect credit score?

If you receive Universal Credit, it won’t negatively affect your credit score. However, it can influence specific applications that you make in the future, such as mortgages or new credit cards, for instance. 

Your credit score is predominantly influenced by your borrowing history and whether or not you’ve repaid your debts. Universal income is part of your income, so it doesn’t affect your credit score in the same way. However, the fact that you’re on Universal Credit might influence your mortgage application. This is because most people who receive Universal Credit have a low income, meaning you might not pass the lender’s affordability test. 

So, the key takeaway is that Universal Credit is a form of income, and it won’t have a negative impact on your credit score. As long as you have been responsible with your past payments and have a reasonable credit history, your credit score shouldn’t be affected by the fact that you’re currently receiving Universal Credit. 

Does gambling affect credit score?

Gambling only affects your credit score if you borrow money to fund it. If you gamble with money in your bank account, cash, or money that you keep in an e-wallet, it doesn’t appear on your credit file and therefore doesn’t affect your credit score. 

Gambling gains and losses aren’t reported to credit bureaus, and your income and bank balances don’t appear on your credit file either. So, provided you don’t take out a personal loan or any other form of credit to pay for gambling, it won’t directly affect your credit score. However, gambling can affect your personal finances more broadly, which could then lead to indirect credit score impacts. 

For instance, if you regularly apply for a cash advance or a casino line of credit, these will appear on your credit file. If you apply for a line of credit from a casino, the lender will perform a hard check on your credit file, which will see your credit score drop a few points in the short term. If you think that your gambling is affecting your personal finances, review the resources at the National Council on Problem Gambling and look for ways to get your habit back under control.

Does Monzo affect credit score?

In October 2021, Monzo announced that it would begin reporting to all the main credit reference agencies in the UK – Equifax, Experian, and TransUnion. So, when you create a Monzo account, credit agencies will be able to see certain details relating to your personal finances. 

Monzo shares information with the agencies, including details about your overdraft balance and enabled overdraft limit, the type of account you have, whether you’re up to date with any payments you owe, whether your account is in default, and whether you have a loan. This is fairly standard for banks, and the fact that Monzo now reports to the UK’s major credit agencies means your Monzo account will now influence your ability to apply for credit in the future. 

Therefore, it’s important to keep up to date with all payments and stay within your agreed overdraft limits. This is true for all banks, and Monzo is no different. The more responsible you are with your personal finances, the more likely you are to have a good credit score, which will make it easier to borrow money as and when you need it.

Does PayPal affect credit score?

If you use PayPal as an e-wallet and don’t apply for credit on the platform, it won’t affect your credit score. However, if you open a business or premier account with Paypal, that account will appear on your credit file. 

For business and premier customers, PayPal may also conduct a soft credit check before approving your account. Still, the only way that PayPal will significantly affect your credit score is if you apply for PayPal Credit, as we’ve explained above. PayPal Credit works like other forms of credit and before approving your application, PayPal will perform a hard check on your file. 

Ultimately, PayPal is an ideal platform because it enables you to make a range of financial transactions and payments without using your bank account. You can store multiple currencies and make affordable international payments, too. If you use PayPal as an e-wallet and don’t apply for credit or a business account, it shouldn’t affect your credit score.

Does Experian affect credit score?

Experian is one of the UK’s major credit agencies, and they are responsible for compiling accurate information regarding your personal finances. When you apply for credit, the lender is likely to approach Experian or another agency to request information about you as a potential borrower. 

The information that Experian holds about you allows them to compute a credit score, which illustrates your creditworthiness. As such, any information that Experian holds about you will affect your credit score, from your history of making repayments to whether or not you’re registered on the electoral roll. 

Checking your credit score with Experian doesn’t affect your credit score, and it’s worth checking in once in a while to see where you stand. Knowing your credit score before applying for a loan or any other form of credit will highlight whether you need to improve your score before submitting an application. This can save your credit score from taking a hit in the short term and is better than applying to multiple lenders only to see your loan applications rejected. 

Conclusion

It’s good practice to think about how any financial transaction you conduct will affect your credit score. However, you should be aware that not all aspects of your personal finance will show up on your credit report, as we’ve illustrated above. 

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Key Takeaways

Remember, any time you take out credit to pay for something, your credit score will be affected. However, this is not to say that it will be negatively affected; your borrowing will merely show up on your credit report. If you make your repayments on time and exemplify your creditworthiness, it will actually contribute positively to your credit score in the long run. 

One thing to be mindful of, however, is whether the lender you’re applying to performs a ‘hard check’ on your credit file. Hard checks will cause a short-term dip in your credit score, and too many applications in a short space of time will be detrimental to your cause. On the other hand, ‘soft checks’ aren’t recorded on your file and won’t influence your score. 

Personal interests like gambling only affect your credit score if you borrow money to pay for them. That being said, gambling can have a negative impact on your personal finances if it gets out of hand, so you should only spend what you can afford to lose. Ultimately, as so many things can influence your credit score, being aware of them will help you improve your creditworthiness over time.

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