Online shopping has taken over in the past decade. More and more people venture onto the internet for their everyday shopping needs. And it’s easy to see why. It makes fighting for car spots in peak periods a thing of the past. No longer do you need to bribe the kids with Maccas to persuade them to come along. Nor do you have to stumble your way through busy shopping centres. Instead, have everything delivered to you at the click of a button from the comfort of your couch. This is even easier now that Commonwealth Bank has partnered up with Klarna. But does ‘Shop Now Pay Later’ affect your credit score?
What Is Klarna?
Sometimes we don’t always have the cash when we need it. Take for example a big clothes sale… It’s the perfect opportunity to stock up the kids’ wardrobe (as well as your own, of course). You know you’ll grab some great bargains, but payday isn’t for another fortnight.
Klarna is one of the world’s largest and most innovative shop now, pay later experiences. Instead of finding stores that offer Afterpay or Layby, you can now access this payment system through your bank. Commonwealth Bank clients are able to sign up and receive immediate access to any online stores. It is a whole new way to shop, but also comes with a brand new set of consequences in this digital age.
How Does Shop Now Pay Later Work and What Does It Mean For Me?
The actual process is simple. You can download the Klarna app and pay anywhere using your Commonwealth cards. You pay your first instalment when the item is shipped, then the rest every fortnight. If you pay each instalment on time, there are no fees involved.
It means you have a much easier way to shop! But it’s also a lot more dangerous as well. It’s easy to adopt the mindset that you don’t have to pay for things straight away. This can be a slippery slope towards debt and being unable to pay off your bills.
While it is great to be able to choose to pay off items in instalments, you need to be aware of your finances. This means budgeting accordingly so payments aren’t missed. You also don’t want to overspend and find you have more to pay back than you can actually afford.
If you are late on repayments, this can have a negative effect on your credit score. You may find that pair of jeans you just had to have, is now factoring into your ability to take out a loan to buy your first home. This is a position you don’t want to find yourself in.
You may also find yourself spiralling into debt. Interest fees start to pile up when repayments aren’t paid on time. So while shop now pay later may sound great, it comes with risk. You need to be sure that you’re in a position to pay the instalments at the correct time before making the commitment.
Does Shop Now Pay Later Affect Your Credit Score?
According to Klarna, less than 1% of their customers have actually defaulted on their payments. If this does occur, your account will be terminated and a credit bureau will be notified, which will affect your credit score.
A default on your credit file is essentially an overdue debt where the repayment hasn’t been made on time. These defaults stay on your report for a period of five years. This can affect your ability to take out loans down the track.
If you do find yourself in a position where you are tied up in uncontrollable debt and have defaulted on your Klarna loan, there are ways you can work to restore it:
- Get back on track with repayments. The best way to help out your credit report is to pay off the debt in question. This won’t remove the default from your account. However, it will look favourable that you have tackled the issue head-on and sorted it as quickly as possible.
- Consider external help. Start with family and friends and see if anyone is in a position to give you a helping hand. If not, but you need a loan fast, then Bad Credit Loans might be able to help.
- Repair your credit history with a credit repair company. You can pay to get your credit file looked at and cleaned up by experts. This is an easy way to wipe the slate clean if you really need a loan and can’t get one because of your bad credit score. Be sure to do your research on these companies. A number of companies make promises which they can’t fulfil. Clean Credit has a 97% success rate and over seventy 5* Trustpilot reviews.
Going in with your eyes wide open will help you to make a decision based on your personal circumstances. This way, you can avoid finding yourself in the position of defaulting on a loan.
If you need help getting your credit file back on track, speak to the experts at Clean Credit today. They will help restore your credit file, so you won’t be overlooked for future loans.