FICO to Include Buy Now, Pay Later Data in Credit Scores
FICO announced on Monday its plans to incorporate Buy Now, Pay Later (BNPL) data into credit scores, reflecting the growing popularity of this payment method.
The newly developed FICO Score 10 BNPL and FICO Score 10 T BNPL are the first to incorporate such data from major credit scoring agencies. FICO stated that these updated scores consider significant advancements in credit scoring, recognizing the growing role of BNPL loans within the U.S. credit landscape.
“Buy now, later loans are becoming increasingly crucial in consumers’ financial lives,” mentioned Julie May, FICO’s vice president of B2B scores. By expanding the FICO score suite with these new models, she added that it could help lenders assess credit readiness more accurately, particularly for those who have just started using BNPL products.
FICO highlighted that there is a widespread agreement on the importance of integrating BNPL data into credit scoring systems. This consensus comes after consultations with some of the largest lenders in the U.S., leading to what FICO describes as an important step towards enabling lenders to make more informed credit decisions.
These new scoring models aim to give lenders better insights into consumer repayment patterns, providing a fuller understanding of an individual’s creditworthiness.
Services like Afterpay, Klarna, Affirm, and PayPal have gained traction, especially as consumers facing high inflation, elevated interest rates, and student loan repayments look for ways to manage their finances. This trend resurfaced in October 2023 after being put on hold during the COVID-19 pandemic.
BNPL allows consumers to make purchases and pay in installments with little or no interest. However, there can be interest associated with specific plans, and late fees can arise if account funds fall short when payments are due.
Historically, these services were primarily used for large purchases, but given current economic conditions, more consumers are now utilizing them for essential items like groceries, as evidenced by a LendingTree report that indicated 25% of BNPL users had purchased groceries, a significant increase from 14% in the previous year.
