On Monday, FICO announced its plans to include “buy now, pay later” (BNPL) data in its credit scoring models, reflecting the rising popularity of this payment option.
The FICO Score 10 BNPL and FICO Score 10 T BNPL will become the pioneering credit scores from a major provider to integrate BNPL information. According to FICO, these scores signify a “significant advancement in credit scoring,” recognizing the growing relevance of BNPL loans within the U.S. credit landscape.
“Buy Now, Pay Later loans are increasingly significant in consumers’ financial lives,” stated Julie May, vice president of B2B Scores at FICO. She emphasized that by expanding the FICO Score 10 Suite with these new models, the company is “enabling lenders to more accurately evaluate credit readiness, especially for those consumers whose initial credit experiences stem from BNPL products.”
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FICO indicated that it engaged with several of the largest lenders in the U.S. and reached a broad consensus that incorporating BNPL data into credit scoring represented a crucial development, enhancing lenders’ ability to make informed and responsible credit decisions.
These new scores will provide lenders with enhanced insights into borrowers’ repayment patterns and will aid in creating a more holistic perspective on consumer credit readiness.
Firms such as Afterpay, Klarna, Affirm, and PayPal have gained traction as consumers, facing ongoing economic challenges such as persistent inflation, elevated interest rates, and the resumption of student loan repayments in October 2023, increasingly turn to these services.
These platforms enable users to make purchases and settle payments in installments, often without incurring interest or additional fees. However, it is worth noting that certain plans may include interest charges, and consumers could face penalties if their account balances are insufficient to meet payment deadlines.
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While these BNPL services have traditionally targeted higher-cost items, their usage has surged amid the current economic climate, prompting a growing number of consumers to utilize them for everyday essentials, including groceries.
According to a LendingTree report from April, 25% of BNPL users are now purchasing groceries through these services, an increase from 14% the previous year.
