FICO to incorporate buy-now-pay-later loans into credit scores
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FICO credit scores will begin incorporating buy-now-pay-later data for the first time.
Why it matters: With over 90 million Americans expected to use BNPL for purchases this year, critics argue that existing credit scores paint an incomplete picture of an individual's ability to pay back loans.
Driving the news: Fair Isaac Corp., which runs FICO, said Monday that it will launch two separate credit scores including BNPL data.
- FICO Score 10 BNPL and FICO Score 10 T BNPL will "represent a significant advancement in credit scoring, accounting for the growing importance of BNPL loans in the U.S. credit ecosystem," the company said in a statement.
- "These scores provide lenders with greater visibility into consumers' repayment behaviors, enabling a more comprehensive view of their credit readiness which ultimately improves the lending experience," FICO added.
The big question: Will the credit profile of borrowers improve or deteriorate after BNPL loans are integrated?
- FICO and BNPL provider Affirm released a study in February simulating the credit score impact of BNPL loans. It showed that the "majority" of consumers with five or more BNPL loans from Affirm would experience "higher scores or no score changes."
- Critics say that BNPL leads to "phantom debt" that could hurt credit scores. The Fed reported in May that "nearly one-fourth" of BNPL users paid late in 2024, up from 18% in 2023.
State of play: Affirm announced earlier this year that it would begin reporting all of its short-term interest-free purchases to credit reporting agency Experian.
- But the loans were not set to immediately factor into consumers' traditional credit scores, Affirm said — though they could down the line as new credit scoring models are developed.
What they're saying: "It is encouraging to see FICO beginning to modernize its scoring models to properly reflect consumers' use of Buy Now Pay Later," Financial Technology Association CEO Penny Lee said in an emailed statement.
- "The industry has long believed that consumers using BNPL responsibly should result in positive credit scores, as the majority of users are paying back in full and on time."
Editor's note: This article was updated with a statement from Financial Technology Association CEO Penny Lee.
