Shopping and payments service Klarna will start to report the use of Buy Now, Pay Later (BNPL) products to UK credit reference agencies from this month.
It will report consumer purchases paid on time, late payments and unpaid purchases for "pay in 30" and "pay in three" orders made on or after June 1 to Experian and TransUnion. Klarna said the move will protect customers and provide the industry with greater visibility of BNPL use, helping to improve affordability assessments.
However, the move will not initially impact UK consumer credit scores as this requires further updates to scoring mechanisms, Klarna said.
Alex Marsh, head of Klarna UK, 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 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."
Klarna said other changes previously announced include updated text at checkouts to make it clear that BNPL options are credit products, with consequences for missed payments, and the introduction of an internal complaints adjudicator.
Concerns have been raised about the rapid growth in popularity of BNPL firms generally.
While BNPL products can help people avoid paying interest on their borrowing, some may rapidly build up debts through using them as an option at online checkouts.
In February, the Financial Conduct Authority (FCA) said some BNPL firms had agreed to change the terms in their customer contracts to make them fairer and easier to understand.
The UK Government plans to change the law to bring some forms of unregulated BNPL products into FCA regulation.
Jenny Ross, Which? Money editor, said: "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."
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