Buy now, pay later loans will now impact Americans’ credit scores

FICO said on Monday that it is going to incorporate buy now, pay later (BNPL) data into credit scores as the payment method surges in popularity. 

The FICO Score 10 BNPL and FICO Score 10 T BNPL will be the first credit scores from a leading credit scoring provider to incorporate this data. FICO said the scores represent a “significant advancement in credit scoring, accounting for the growing importance” of such loans in the U.S. credit ecosystem.

“Buy Now, Pay Later loans are playing an increasingly important role in consumers’ financial lives,” Julie May, vice president of B2B Scores at FICO, said. By expanding its FICO Score 10 Suite with these new models, May said the company is “enabling lenders to more accurately evaluate credit readiness, especially for consumers whose first credit experience is through BNPL products.”

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FICO said it utilized input from the largest lenders in the U.S. and that there was a broad consensus that integrating BNPL data into credit scoring “is a critical advancement that allows lenders to make more informed, accurate decisions while responsibly expanding credit access.”

FICO said these scores will provide lenders with greater visibility into consumers’ repayment behaviors and will enable a more comprehensive view of their credit readiness.

Lending services such as Afterpay, Klarna, Affirm and PayPal have risen to prominence as cash-strapped consumers looked to stretch their wallets as they contend with persisting inflation, high interest rates and student loan payments, which resumed in October 2023 after a pause due to the COVID-19 pandemic.  

The services allow consumers to make purchases and pay for them in installments, often with no interest or fees. However, interest is tacked on to certain plans, and consumers can get hit with a late fee if they don’t have adequate funds in their account to cover the payments.

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Traditionally, they have been utilized for big-ticket items. However, these buy now, pay later financing options have become so popular in the current economic environment, that a growing number of consumers are even leveraging them to pay for necessities like food. 

Data from an April LendingTree report shows that 25% of such users have used the service to buy groceries, up from 14% a year ago.