FICO (Fair Isaac Corp) is making updates to its credit score models to incorporate Buy Now, Pay Later (BNPL) data. It announced this update today: FICO Unveils Groundbreaking Credit Scores That Incorporate Buy Now, Pay Later Data. See the outline below for details.
FICO and BNPL provider Affirm released a study in February simulating the impact of credit score on BNPL loans. It showed that the "majority" of consumers with five or more BNPL loans from Affirm would experience "higher scores or no score changes." *
Key Details of FICO's Updates
New Scores: FICO will be introducing two new credit score models, FICO Score 10 BNPL and FICO Score 10 T BNPL, which will factor in BNPL repayment information.
Launch: These new scores are set to launch in the fall of 2025.
Purpose: FICO's aim is to provide lenders with a more comprehensive understanding of consumers' repayment behavior, especially for those with limited traditional credit history who utilize BNPL services.
Data Aggregation: FICO has developed an innovative approach that involves aggregating separate BNPL loans when calculating certain variables within their models.
Potential Impact: Early studies with Affirm, a major BNPL provider, suggest that for many consumers with five or more BNPL loans, the inclusion of this data could lead to higher scores or no change.
Availability: FICO Score 10 BNPL and FICO Score 10 T BNPL will be offered alongside the existing versions of the FICO Score, allowing lenders to evaluate the impact of BNPL data within their current processes.
Why the Update Matters
Financial Inclusion: Incorporating BNPL data could help individuals with limited or no traditional credit history to build a credit profile and potentially access more traditional forms of credit.
Lender Visibility: Lenders will gain better insight into how consumers manage BNPL loans, helping them make more informed lending decisions.
"Phantom Debt": BNPL has sometimes been referred to as "phantom debt" because it was often not reported to credit bureaus, making it difficult for lenders to assess a borrower's overall financial health. FICO's update addresses this blind spot.
Important Considerations
Lender Adoption: It will take time for lenders to widely adopt these new scores.
Bureau Reporting: The credit bureaus (Experian, Equifax, TransUnion) have begun collecting BNPL data, but the consistency of reporting from BNPL providers is still evolving.
Responsible Use: While BNPL can be helpful for building credit, it's crucial for consumers to be mindful of their usage, avoid overspending, and make timely payments to maintain a healthy credit profile.
FICO's integration of BNPL data into its credit scoring models is meant to provide a more complete picture of consumer creditworthiness.
For inquiries regarding this update contact us for professional advice.
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* FICO and Affirm Unveil Industry-Leading Analysis of ‘Buy Now, Pay Later’ Loans, February 4, 2025, FICO Newsroom, Scoring Solutions
