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Buy Now, Pay Later (BNPL) loans will soon impact Americans' credit scores, as FICO plans to integrate BNPL data into its credit scoring models. The new scores, FICO Score 10 BNPL and FICO Score 10 T BNPL, will launch later this year, marking the first time a leading credit scoring provider includes BNPL data.
According to CNN, this change aims to provide lenders with a clearer view of consumers' repayment behaviors, especially for those whose first credit experience is through BNPL products. BNPL loans, popular for their flexible payment options, have seen increased adoption, particularly among younger adults.
The integration of BNPL data is seen as a significant advancement in credit scoring, potentially serving as a credit-builder or credit-buster for consumers. FICO's decision follows input from major U.S. lenders, who expressed the need for a more comprehensive credit scoring model.
However, concerns remain about the potential for overspending and the impact on consumers' financial health. A Bankrate survey found that nearly half of BNPL users have faced issues, with overspending being the most common problem. Additionally, the use of BNPL for everyday purchases like groceries has increased, raising questions about financial sustainability.
The inclusion of BNPL data in credit scores could either improve or worsen borrowers' credit profiles. The rollout of these new scoring models is expected to be gradual, as lenders adapt to the changes in credit evaluation.