People who use buy now, pay later service Klarna have been issued a warning that their debts will start being reported to credit agencies from next month.
From June 1, the company will report customer purchases paid on time, late payments and unpaid purchases for "pay in 30" and "pay in three" orders to Experian and TransUnion.
According to Klarna, this will help protect consumers and give greater visibility to buy now pay later (BNPL) use, which it claims will help improve affordability assessments.
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The move will not affect customers' credit scores initially, as this will require further updates to scoring mechanisms, but in the future those who miss a payment, or pay late, could be less likely to be accepted for credit.
Head of Klarna UK Alex Marsh said: "It is alarming that UK consumers are still being forced to take out high cost credit cards to demonstrate they can use credit responsibly and build their credit profile.
"That will start to change on June 1 this year as the vast majority of the 16 million UK consumers who make Klarna BNPL payments in full and on time will be able to demonstrate their responsible use of credit to other lenders."
Other changes that have already been announced include overhauled text at checkouts to help customers understand that BNPL services are credit products — which carry consequences if you miss a payment — as well as the launch of an internal complaints adjudicator.
It follows concerns that have been voiced regarding the fast growth of BNPL firms, with fears that customers who are not aware of the risks may accumulate large amounts of debt.
The Financial Conduct Authority (FCA) stated in February that some BNPL firms had agreed to alter the terms in their customer contracts to make them fairer and more easily understood.
As reported by the Daily Record, the UK Government intends to adjust the law to bring some forms of unregulated BNPL products into FCA regulation.
Which? Money editor Jenny Ross stated: "Using buy now pay later is an easy and convenient way to pay for millions of people.
"However, with currently little to no information or warnings about the risks of incurring late fees or getting into debt, it raises concerns that many shoppers do not fully understand the products they're using.
"BNPL providers' move to work with credit reference agencies to report customer BNPL usage and missed payments is a step in the right direction, as it could help mitigate the risk of consumers taking on more BNPL credit than they can afford.
"However, this does not remove the urgent need for Government regulation of all BNPL firms to follow as quickly as possible to ensure users are properly protected."
