BNPL Loans Will Now Impact Your Credit Score — Here’s What You Need to Know

BNPL loans are changing the landscape of credit scoring. With FICO introducing new models, your BNPL repayment history could soon impact your score. This shift could help some borrowers build credit but may complicate matters for others.

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BNPL Loans. credit : shutterstock | en.Econostrum.info - United States

The rise of Buy Now, Pay Later (BNPL) services has provided American consumers with a flexible way to make purchases by breaking down payments over time. However, until now, these loans have largely gone unnoticed by traditional credit scoring systems. That is about to change.

FICO, one of the most widely used credit score providers, is set to incorporate BNPL data into its scoring models later this year. This marks a significant shift in how lenders assess the creditworthiness of borrowers. As BNPL usage continues to surge, understanding the potential effects on credit scores is becoming increasingly important.

The Shift Towards BNPL-Integrated Credit Scores

Until recently, BNPL loans were not reflected in the credit scores that lenders rely on to make decisions. According to FICO, the company’s new FICO Score 10 and FICO Score 10 T, which are scheduled to launch later this year, will incorporate BNPL data. 

This change aims to offer a more comprehensive view of a consumer’s financial activity, especially given that BNPL loans have become a popular alternative to credit cards, particularly among younger consumers.

Incorporating BNPL activity into credit scores could have both positive and negative consequences. On one hand, it may provide an opportunity for individuals with limited or no credit history to build a stronger credit profile. 

Ted Rossman, senior industry analyst at Bankrate, explained that BNPL could serve as a “credit-builder” for young people who have little to no prior engagement with traditional credit systems. On the other hand, it could expose users to higher risks, especially if they fail to manage their payments responsibly.

Risks and Concerns with BNPL Credit Reporting

While BNPL services are marketed as convenient and flexible, they also pose significant financial risks. According to a Bankrate survey, nearly 50% of BNPL users reported experiencing at least one problem, with overspending topping the list. 

Consumer advocates have also raised concerns about “phantom debt”—a term used to describe debt that is not visible on traditional credit reports, but which could still affect a person’s financial health.

The Consumer Financial Protection Bureau (CFPB) has raised alarms about BNPL’s role in expanding unregulated borrowing, particularly for non-essential purchases like groceries. 

Although BNPL services remain largely unregulated, some providers, such as Affirm, have begun reporting to credit bureaus like Experian and TransUnion. However, this practice is not yet widespread, and the regulatory landscape for BNPL remains unclear.

The inclusion of BNPL loans in credit scores may prompt more lenders to take a closer look at repayment habits, but experts caution that integrating BNPL data into established credit scoring models is complex. 

Not all BNPL providers report to credit bureaus, and when they do, the information can be fragmented and inconsistent. As FICO adjusts its models to accommodate these loans, it is clear that managing BNPL debt will become an increasingly important aspect of personal financial responsibility.

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