BREAN HORNE: Are we letting easy credit destroy our financial futures?

22 January 2020

Klarna has given a new lease of life to ‘buy now, pay later’ schemes, but if you miss a payment it could impact your credit score


They allow you to act in the same way online as you would if you went into a physical shop. You can ‘walk’ around looking at items and then try on clothes at home before deciding whether or not to hand over your money.

It’s an appealing proposition for people who frequently shop online or don’t have the funds they need at the time of placing an order.

But I think there is something more sinister hiding behind the veil of financial ease. Missing payments with Klarna and other ‘buy now, pay later’ schemes could have a devastating impact on your credit score.

Young people especially could be putting their financial futures on the line if they don’t keep up with payments.

A poor credit history could result in a person being turned down for anything from a mobile phone contract to a mortgage.

Car insurers have started to take credit scores into account when calculating insurance premiums too, meaning those with bad credit scores could end up paying more for cover.

Already around 4.4 million young people have been turned down for a rental property for having low credit scores, according to credit information company Credit Karma. So when it comes to using ‘buy now, pay later’ schemes, it is worth considering carefully.

Losing control of your payments could result in debt problems as well as wreaking havoc on your financial future.

Keeping on top of your credit score

When I tried checking my credit score for the first time in 2018, I was surprised to find that most of the credit reference agencies couldn’t generate one because I had a ‘thin credit file’.

That means there wasn’t enough information about my financial track record for them to analyse.

It was a mystery to me because I had a credit card as well as my monthly phone contract and multiple bills and direct debits in my name.

After weeks of digging, I got a credit score from Clear Score, and a couple of months later the other credit reference agencies were able to generate scores for me, too.

Since then I’ve regularly monitored my score to try to keep it in good shape.

If you’d like to get on top of your credit score, these tips can help.

Check your credit score

It’s hard to guess what your credit score is likely to be – that’s why it’s vital to check regularly. Not only will it allow you to identify mistakes that could impact your ability to take out new credit, it can also help you spot any fraudulent activity, which could result in a bad credit history.

Think before applying for new credit

Making an application for credit will leave a ‘footprint’ on your credit file. If your credit application has been rejected, it is worth delaying before applying for more. Multiple credit applications over a short period of time could suggest to lenders that you’re in financial difficulty and have a negative impact on your score.

Check to see if a product could affect your credit score

It may not be clear whether a product could affect your credit score. All ‘buy now, pay later’ schemes are some form of credit agreement, which will have an impact on your score should you miss a payment. If you’re ever unsure, have a read of the terms and conditions and get in touch with their customer service team.