FICO's New BNPL-Integrated Credit Scores
FICO announced on Monday that it will incorporate buy now, pay later (BNPL) data into its credit scores as this payment method gains widespread popularity. The FICO Score 10 BNPL and FICO Score 10 T BNPL represent the first credit scores from a leading provider to include this data, marking a significant advancement in credit scoring that accounts for the growing role of such loans in the U.S. credit ecosystem.
FICO utilized input from the largest U.S. lenders, achieving broad consensus that integrating BNPL data is critical for enabling more informed and accurate lending decisions while responsibly expanding credit access. These scores offer lenders enhanced visibility into consumers' repayment behaviors and a more comprehensive view of their credit readiness.
Buy Now, Pay Later loans are playing an increasingly important role in consumers’ financial lives. By expanding its FICO Score 10 Suite with these new models, the company is enabling lenders to more accurately evaluate credit readiness, especially for consumers whose first credit experience is through BNPL products.
Rise of BNPL Services Amid Economic Pressures
Lending services such as Afterpay, Klarna, Affirm, and PayPal have risen to prominence as cash-strapped consumers seek to stretch their wallets amid persisting inflation, high interest rates, and the resumption of student loan payments in October 2023 following a COVID-19 pause. These services allow purchases to be paid in installments, often without interest or fees, though certain plans accrue interest and late fees apply if funds are insufficient.
Originally used for big-ticket items, BNPL options have become so popular in the current economic environment that a growing number of consumers are leveraging them for necessities like food. An April LendingTree report indicates that 25% of BNPL users have used the service to buy groceries, up from 14% a year ago.
Key BNPL Providers
- Afterpay
- Klarna
- Affirm
- PayPal
