The adoption of Buy Now, Pay Later (BNPL) loans by US consumers has been on the rise in the United States. In the latest Lending Tree BNPL tracker, nearly half of Americans had used one at least once, 11% six times or more.
These installment loans to make purchases are especially popular among younger Americans, particularly when looking for an alternative to a credit card. However, more than six in ten users of BNPL loans incorrectly believe that making an on-time payment on these short-term loans helps their credit score says data from Lending Tree.
That’s about to change though as BNPL lenders will now be required to report to credit agencies, lenders or other data-keepers on their client’s borrowing and repayment history. While this could be a good thing for those who are on top of their finances and looking to build their credit score, the opposite could be true too.
FICO to incorporate Buy Now, Pay Later loan data
In an announcement this week, the company that runs FICO, Fair Isaac Corp., said it was launching two separate credit scores which will include BNPL data. FICO Score 10 BNPL and FICO Score 10 T BNPL will “provide lenders with greater visibility into consumers’ repayment behaviors, enabling a more comprehensive view of their credit readiness which ultimately improves the lending experience,” explained FICO.
The two new scores “were developed to harness the benefits offered by the incorporation of consumers’ BNPL data into calculation” based on findings from a joint year-long study carried out with Affirm.
FICO’s “innovative approach” aggregates separate BNPL loans together when calculating certain variables in the models which were shown to produce “higher scores or no score changes for the majority” of consumers who had five or more BNPL loans.
“Our clients tell us that FICO’s initiative to include BNPL data in credit scoring is a progressive step that acknowledges the evolving landscape of consumer financing,” said Julie May, vice president and general manager of B2B Scores at FICO. “By capturing a broader view of consumer credit behavior, lenders believe they can make more informed decisions, ultimately benefiting both the industry and consumers.”
These new scoring systems are expected to be rolled out in the fall of this year.
Get your game on! Whether you’re into NFL touchdowns, NBA buzzer-beaters, world-class soccer goals, or MLB home runs, our app has it all.
Dive into live coverage, expert insights, breaking news, exclusive videos, and more – plus, stay updated on the latest in current affairs and entertainment. Download now for all-access coverage, right at your fingertips – anytime, anywhere.
