Klarna to report customer debts to credit agencies

Buy-now-pay-later firm Klarna will start reporting customer use of its products to credit agencies which could affect their credit ratings.

The firm said the move could help or hinder customers' ability to get credit for loans such as mortgages.

Klarna will start sharing the data from 1 June, with banks and credit card firms able to see customers' transactions when conducting checks.

A buy now, pay later boom has fuelled fears it encourages people into debt.

Klarna already reports the use of one of its products, Klarna Financing, which is for larger purchases with repayments over six to 36 months.

From 1 June, it will also report customer use of its Pay in 3 (instalments) and Pay in 30 (days) products.

At present, Klarna customers who fall behind on payments when using these products can be referred to debt collection agencies, but the firm said this does not affect their credit rating.

However, this will change from 1 June, and how prompt people are at repaying those debts will be noted on their credit file.

Last year the Citizens Advice charity said one in 10 shoppers who use buy-now-pay-later credit end up being pursued by debt collectors.