FICO Adds Buy Now, Pay Later to Credit Scores
FICO will add buy now, pay later loans to credit scores, a move that could affect mortgage applicants as lenders begin factoring in the new credit data.
NEW YORK — Your buy-now-pay-later activity could soon impact your credit score.
FICO announced Monday that it will begin incorporating buy-now-pay-later (BNPL) data into new scoring models, marking the first time the company has factored the popular loans into credit scores.
BNPL has taken off in recent years, allowing shoppers to pay off everything from groceries to Chipotle burritos in separate installments. But until recently, those loans were left off credit reports, meaning consumers' repayment habits remained a mystery.
"By capturing a broader view of consumer credit behavior, lenders believe they can make more informed decisions, ultimately benefiting both the industry and consumers," Julie May, vice president and general manager of B2B Scores at FICO, said in a release.
Buy now, pay later is everywhere: Is it a ticking time bomb?
The question now is whether BNPL borrowers' credit scores will benefit or suffer.
On one hand, BNPL users who pay on time now have an opportunity to build credit in ways they didn't before, potentially boosting their scores. However, those who fall behind could see their scores decline.
"Ultimately, I believe that BNPL credit reporting is a good thing," Bankrate senior industry analyst Ted Rossman said in an email.
Rossman noted that it could be especially helpful for young adults who use BNPL responsibly and often lack lengthy credit histories.
Why are more shoppers struggling to repay 'buy now, pay later' loans?
In February, FICO and BNPL provider Affirm released a study analyzing the potential credit score impact of BNPL loans. It concluded that the "majority" of those with five or more Affirm BNPL loans would experience higher scores or no changes.
Even so, the Consumer Financial Protection Bureau has found that BNPL users tend to have riskier credit profiles and are generally younger.
Recent research from the Federal Reserve found that "nearly one-fourth" of BNPL users paid late in 2024, up from 18% in 2023.
Part of BNPL's appeal is that these loans have typically involved fewer consequences for missed payments than credit cards, which often add late fees and hefty interest. A potential hit to someone's credit score adds a new layer of risk.
That said, don't expect the changes to happen overnight. FICO said its two new credit scores incorporating BNPL data are expected to launch this fall, but Rossman said widespread adoption could take much longer.
"It's going to be a process – probably a multi-year process," Rossman said.
It's also not completely clear how BNPL will be measured since it's a relatively new and distinct financing option.
For example, current credit scoring models often penalize consumers for opening multiple credit cards in a short period, but with BNPL, taking out several loans is part of the appeal, and applying the same standards could hurt borrowers.
FICO said it developed an "innovative approach" that takes into account the unique ways consumers use BNPL loans in its models.
Monday's announcement isn't a total surprise, as BNPL companies have been moving in this direction recently.
Earlier this year, Affirm said it would begin reporting BNPL transactions to Experian and TransUnion and "may report to other credit bureaus in the future." Klarna is also sending data on some of its plans to TransUnion.
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