FICO to Include ‘Buy Now, Pay Later’ Loans in Credit Scoring Model

How Buy Now, Pay Later (BNPL) Impact Credit Scores

Traditionally, Buy Now, Pay Later (BNPL) payment plans that allow customers to break down big purchases into smaller installments had no impact on
credit scores. However, recent announcements by Fair Isaac Corp., the company
behind the popular FICO score, indicate that this is about to change.

FICO’s Inclusion of BNPL in Credit-Scoring Models

In June, FICO announced that it would start factoring in a person’s ‘buy now, pay later’ payment history into its credit-scoring models, as noted by
The New York Times. This move aims to give lenders a more comprehensive picture of a borrower’s debt level and their ability to repay.

The Future of BNPL and Credit Scores

According to a yearlong study by FICO and Affirm, a BNPL company, it’s projected that Affirm customers with multiple BNPL loans will likely see their scores increase with the new scoring models. However, this outcome will depend primarily on timely payment. Monitor your BNPL payments carefully to evade late fees and possible negative impacts on your credit score, as advised by
Bankrate.

Building Credit with BNPL

The inclusion of BNPL in credit scoring could present a viable path for borrowers with little to no credit history to build a better one, as stated by Ethan Dornhelm, the vice president of FICO Scores and Predictive Analytics. However, be wary of the risks associated with BNPL, as it often lacks the safeguards that come with traditional credit-building methods.

When Does BNPL Credit Reporting Start?

The new FICO scores that will include BNPL data will be available in the fall, as reported by
Money. The three major credit reporting agencies (Experian, Equifax, and TransUnion) will then decide when to make this information accessible to consumers.

Avoiding Negative Credit Effects from BNPL

Managing BNPL responsibly is crucial. Stay on top of your BNPL payments to avoid late fees and potential negative impacts on your credit score. Ensure you can comfortably afford the installment payments without straining your budget. As BNPL starts affecting your credit score, closely monitor
your credit report. Ensure all BNPL activities are accurately reflected, and promptly report any errors to the BNPL service provider and the credit reporting agency.