Buy now, pay later (BNPL) loans are being incorporated into credit scores by FICO, a leading credit scoring provider. The new models, FICO Score 10 BNPL and FICO Score 10 T BNPL, will provide lenders with more accurate information on consumers’ repayment behaviors.
FICO said it used input from major lenders in the US to create these new models, which aim to enhance lenders’ ability to evaluate credit readiness. The scores will offer a broader view of consumers’ financial health and enable lenders to make informed decisions about extending credit.
The integration of BNPL data into credit scores comes as the payment method gains popularity among cash-strapped consumers. Lenders such as Afterpay, Klarna, Affirm, and PayPal are becoming increasingly important in helping consumers manage their finances during economic uncertainty.
However, experts warn that BNPL services can be used to overspend on necessities like food. According to a recent LendingTree report, 25% of users have bought groceries using these services, up from 14% last year. FICO’s new models aim to address this issue by providing lenders with more accurate data on consumers’ repayment habits.
The inclusion of BNPL data in credit scores is seen as a significant advancement in the US credit ecosystem, enabling lenders to make more informed decisions while expanding credit access responsibly.
Source: https://www.foxbusiness.com/personal-finance/buy-now-pay-later-loans-now-impact-americans-credit-scores