In a significant shift for the consumer credit landscape, Fair Isaac Corporation (FICO), the company behind the widely used FICO credit score, announced that it will incorporate Buy Now, Pay Later (BNPL) loan data into its credit scoring model.
This move, reported by The Wall Street Journal, marks a pivotal change in how the rapidly growing BNPL industry will influence Americans’ credit profiles.
As BNPL services like Affirm, Klarna, Afterpay, and PayPal surge in popularity, this update addresses a long-standing blind spot in credit reporting, offering both opportunities and challenges for consumers and lenders.
BNPL loans, often referred to as “phantom debt,” allow consumers to split purchases into interest-free or low-interest installments, typically over a short period.
These services have become a financial lifeline for millions, with over 90 million Americans expected to use BNPL for purchases in 2025.
From big-ticket items like electronics to everyday necessities like groceries, BNPL’s appeal lies in its flexibility, especially for younger and underserved consumers navigating economic pressures such as inflation and high interest rates.
However, until now, BNPL activity has largely gone unreported to credit bureaus, leaving lenders without a clear picture of borrowers’ repayment behaviors.
FICO’s new models, FICO Score 10 BNPL and FICO Score 10 T BNPL, aim to bridge this gap.
Developed after a year-long study with Affirm, these scores will integrate BNPL data alongside traditional credit information, providing lenders with greater visibility into consumers’ financial habits.
The study revealed a unique BNPL behavior: consumers often open multiple BNPL loans in a short period, unlike traditional loans such as mortgages or auto loans.
To avoid unfairly penalizing this behavior, FICO has designed an innovative approach that aggregates BNPL loans when calculating certain variables, ensuring a fairer assessment of credit risk.
This change has its pros and cons for consumers.
On one hand, responsible BNPL users who make timely payments could see their credit scores improve, particularly those with limited credit histories, as on-time payments can bolster their credit profile.
BNPL accounts also diversify credit mix, which accounts for 10% of a FICO score, potentially benefiting those building or rebuilding credit.
On the other hand, missed payments could have a significant negative impact, as payment history constitutes 35% of a FICO score.
Late fees or interest on certain BNPL plans could exacerbate financial strain, especially for those already living paycheck to paycheck.
For lenders, the inclusion of BNPL data is a “critical advancement,” as noted by Julie May, vice president and general manager of B2B Scores at FICO.
It enables more accurate evaluations of creditworthiness, particularly for consumers whose primary credit experience is through BNPL.
This could enhance financial inclusion by helping underserved consumers gain access to traditional credit products.
However, the transition may be gradual, as not all lenders adopt the latest FICO models immediately.
For instance, FICO Score 8 remains the most widely used, despite newer versions like FICO Score 10 being available.
The BNPL industry’s growth has not been without controversy.
Critics have raised concerns about consumers overextending themselves, with 25% of BNPL users reportedly using the service for groceries, up from 14% a year ago.
The lack of consistent reporting standards among BNPL providers has also complicated credit evaluations.
FICO’s initiative, supported by major lenders, aims to address these issues by standardizing how BNPL data is factored into credit scores.
As BNPL becomes a fixture in consumer finance, FICO’s update reflects its evolving role.
Consumers using BNPL services should monitor their credit reports closely to understand how their repayment behavior impacts their scores.
By offering these new scores alongside existing models, FICO aims to ensure a smooth transition for lenders while promoting transparency and inclusivity in the credit ecosystem.
This change underscores the need for responsible financial management in an era where BNPL is no longer just a checkout option but a factor in long-term financial wellbeing.