U.S. consumers signed up for billions of dollars of “buy now, pay later” plans last year. Almost none are reflected in their credit scores.

Equifax Inc., Experian PLC and TransUnion began allowing buy now, pay later companies to report their short-term payment plans earlier this year. But some of the biggest players in the business, including Affirm Holdings Inc., Klarna Bank AB and Afterpay, aren’t yet doing so. 

SHARE YOUR THOUGHTS

Should buy now, pay later services share information with credit-reporting firms? Why or why not? Join the conversation below.

Buy now, pay later companies and credit-reporting firms are worried that the accounts could unintentionally lower consumers’ credit scores, even if they pay on time and in full, according to people familiar with the matter. 

Many so-called pay-in-four plans are paid biweekly over six weeks, meaning they are opened and closed more frequently than debts such as mortgages and auto loans that people can make payments on for years. That can lower a borrower’s credit score, some credit-reporting and scoring companies have found, even if she has paid on time and in full.  

One credit-reporting firm ran a test of more than 130 million buy now, pay later loans and short-term payment plans that found some 57% of consumers who have these accounts on their credit reports would experience a “material” credit-score decrease that could persist for over a year, despite paying the accounts on time, according to people familiar with the matter. 

The holdup exposes a shortcoming in the decades-old credit-reporting and scoring system. Credit scores such as FICO are calculated using the information on consumers’ credit reports. The system was designed around the kinds of consumer debt that were common at the time—mortgages, car loans and credit cards that require monthly payments that can last for years. Debts with repayment terms of a few weeks were uncommon until buy now, pay later plans became popular.

A host of retailers have added such payment options at checkout in recent years. Large buy now, pay later companies in the U.S. originated $24 billion of pay-in-four plans last year, more than 12 times the amount from 2019, according to a report last month from the Consumer Financial Protection Bureau. 

The CFPB has been pushing both the buy now, pay later companies and the credit-reporting firms to include the plans on consumers’ files. 

The agency has said it wants credit-reporting firms to develop a uniform way of reporting buy now, pay later accounts and expects score providers and lenders to “build and calibrate models” that factor in the plans’ unique characteristics. 

“We welcome credit reporting that is ‘fit for purpose’ by addressing short-term payment products that do not allow consumers to revolve into debt,” an Afterpay spokeswoman said.

Klarna believes “reporting agencies should develop a model that works for different forms of credit,” a spokeswoman said.

An Affirm spokesman said: “We have been actively engaged across the industry and with credit-reporting agencies to optimize reporting standards for buy now, pay later transactions, enable consumers to build their credit histories, and have on-time payments accurately and positively reflected on their scores.” The company does report some of its longer-term installment loans.

The CFPB has said lack of reporting could “have downstream effects on consumers,” including those who pay on time and are trying to build their credit histories.

Buy now, pay later “has the potential [to] help drive broader financial inclusion, and we are working rapidly to incorporate this into VantageScore models in a way that is beneficial for all stakeholders,” said Silvio Tavares, chief executive of VantageScore Solutions LLC, a credit-score provider that is owned by credit-reporting firms.

The lack of reporting has made it difficult for lenders to know the total dollar amount of debts and other obligations that people are carrying before determining whether to approve them for new credit. Someone might appear to have few debts when actually owing several hundred dollars a month on buy now, pay later plans. 

A recent CFPB report says large buy now, pay later companies in the U.S. originated $24 billion of pay-in-four plans last year.

Photo: Joshua Roberts/Bloomberg News

Executives in the credit-reporting and scoring industry said scoring models and algorithms need time to adjust to materially different data. The first step, they said, is getting the buy now, pay later companies to share more of their data. 

That “will allow the whole industry to move forward together with a clear understanding of how these loans impact consumers’ credit scores and overall credit risk,” said Ethan Dornhelm, vice president of scores at FICO.

It will likely be at least a year before these plans are reflected in FICO scores, according to people familiar with the matter.

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com