Buy Now, Pay Later (BNPL) is a fast growing trend in the world of consumer finance. And it’s no wonder. As an alternative to paying by credit card or applying for long-term financing, BNPL is an easily accessible and flexible payment option for consumers — especially those looking to stretch a larger purchase over a few months with no interest.
Another perk? Historically, Buy Now, Pay Later loans have not impacted credit scores — that is, until now.
This week, FICO announced that BNPL purchases will be factored into two new credit scoring models this fall: FICO Score 10 BNPL and FICO Score 10 T BNPL. These updated models will utilize FICO’s “novel” scoring approach to uniquely address the differences between a BNPL line of credit versus a traditional loan or credit card balance.
Will Consumers’ Credit Scores Take a Hit?
Not necessarily.
First, lenders are not required to use FICO scores to run credit checks. According to CNN, FICO claims that 90 percent of lenders do use its models; however, most use the FICO Score 8 model introduced back in 2009.
Second, although Buy Now, Pay Later lenders are responsible for reporting activity to credit reporting agencies like TransUnion, Equifax, and Experian, not many do because BNPL is generally unregulated. Major lender Affirm recently began reporting to Experian, and yet, without a widely used model that incorporates BNPL purchases, these reports only serve to provide added visibility into consumers’ credit histories.
Third, change takes time. Ted Rossman, Bankrate’s Chief Credit Analyst told CNN that, while FICO’s new model is a “step in the right direction” for consumer financing, his “suspicion is that this may be a slower rollout than one might think at first glance.”
Could the New FICO Score Model Help Consumers’ Credit?
Possibly, yes.
For consumers looking to establish a credit history, utilizing BNPL loans and paying them off on time could boost credit scores — but only after FICO’s BNPL models are introduced and more widely adopted by lenders.
With 52 percent of Americans now utilizing Buy Now, Pay Later options at checkout, this announcement could certainly impact BNPL usage in the near future. For now, it is something to be aware of, both as an independent retailer navigating consumer finance trends, and as a consumer yourself.
