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Millions of Americans who rely on 'Buy Now, Pay Later' (BNPL) schemes for everything from clothing to concert tickets will soon see these short-term loans directly impact their credit scores, marking a significant shift in how consumer creditworthiness is assessed. Scoring giant FICO announced on Monday that it is rolling out a new model that will factor these popular payment plans into its consumer scores, which are used by the majority of lenders to determine a borrower’s financial reliability.
Previously, BNPL loans were largely excluded from credit reports, though Buy Now, Pay Later provider Affirm began voluntarily reporting 'pay-in-four' loans to Experian, a separate credit bureau, in April. The new FICO scores will become available to lenders as an option from the autumn, aiming to provide increased visibility into consumers' repayment behaviour. However, widespread adoption may take time, as not all BNPL companies share data with credit bureaus, and not all lenders will immediately opt into the new models, according to Adam Rust, director of financial services at the non-profit Consumer Federation of America.
The move comes as BNPL loans, typically structured as four interest-free instalments over six weeks with minimal or no credit checks, have become an increasingly significant part of the US credit ecosystem. FICO stated that its new model accounts for this growing trend. Julie May, vice president and general manager of business-to-business scores at FICO, said: "Buy Now, Pay Later loans are playing an increasingly important role in consumers’ financial lives. We’re enabling lenders to more accurately evaluate credit readiness, especially for consumers whose first credit experience is through BNPL products."
FICO believes the new model will responsibly expand access to credit, particularly for younger consumers or those with limited credit histories. A joint study with Affirm, which trained FICO's new scores on over 500,000 BNPL borrowers, found that consumers with five or more loans typically saw their scores increase or remain stable under the new system. For those who consistently repay their BNPL loans on time, this could lead to improved credit scores, potentially enhancing access to mortgages, car loans, and apartment rentals. Currently, these loans do not typically boost scores, though missed payments can negatively affect them.
However, consumer advocates have raised concerns. While BNPL providers promote these plans as safer alternatives to credit cards, critics warn of "loan stacking," where consumers take on multiple loans across various companies simultaneously. The previous opacity around this practice has led to warnings of "phantom debt" that could mask a consumer's true financial health. Nadine Chabrier, senior policy and litigation counsel at the Center for Responsible Lending, expressed concern that integrating these loans into scores could have unforeseen negative effects on individuals already facing credit constraints.
"There isn’t a lot of information out there about how integrating BNPL into credit scoring will work out," Ms Chabrier said, noting that while FICO's simulation showed some users' scores increasing, the overall consequences are hard to predict without more detailed modelling information. She cited research indicating that many BNPL users already have revolving credit card balances, lower credit scores, delinquencies, and existing debt, with women of colour disproportionately using these loans. "This is a credit vulnerable community," Ms Chabrier added.
Despite the changes, Adam Rust does not anticipate an immediate "game-changer" for consumers with established credit profiles. "Are we at a point where using BNPL loans will dramatically alter your credit profile? Probably not," he said, explaining that the average BNPL loan is around \$135, and consistent repayment of such small amounts may not significantly move the needle on a credit score. "It's not about going from 620 to 624. It's about going from 620 to 780," he clarified, referring to the substantial score jumps that impact credit card offers and interest rates.
Nevertheless, Mr Rust acknowledged that increased transparency around BNPL loans could create a more accurate picture of a consumer's debts, potentially improving underwriting and preventing individuals from over-extending themselves. "This addresses the problem of ‘phantom debt,’ and that’s a good thing," he concluded. "Because it could be something that keeps people from getting too deeply into debt they can’t afford." The shift comes as millions of Americans have already seen their credit scores decline steeply since March, following the resumption of student loan payments.
