Millions of credit scores may suffer after new payment policy to start this fall – but there’s a way shoppers can avoid

THERE are fears that millions of credit scores may suffer after the launch of a major new payment policy this fall.

But there is a way that savvy shoppers can avoid being penalized.

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BNPL loans have exploded in popularity in the United States[/caption]

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FICO announced that it will begin incorporating buy now, pay later data into new credit scoring models[/caption]

In a major tweak, FICO (a rating created by Fair Isaac Corp.) is adding buy now, pay later (BNPL) data activity to credit scores.

So, from fall, hundreds of millions of loans tied to the “pay later” option at checkout will be taken into consideration by the firm behind the most widely used U.S. credit score, said The Wall Street Journal.

This will affect potential borrowers who rely heavily on short-term financing.

FICO, a global analytics software firm, hailed the change as “a significant advancement in credit scoring” when it announced the modification on Monday.

In its statement, FICO said the tweak would “account for the growing importance of BNPL loans in the U.S. credit ecosystem.”

Julie May, VP at FICO, said, “Buy now, pay later loans are playing an increasingly important role in consumers’ financial lives.”

This will give mortgage brokers, loan officers and lenders greater insight into what has often been called “phantom debt,” explained Housing Wire.

That term refers to installment loans that previously did not appear on borrowers’ credit reports.

But, there are fears the move could end up hurting some Americans’ credit scores, warned News Nation.

For example, consumers who fall behind in payments could see their scores decline, it explained.

The Federal Reserve also noted problems in the sector in its recent “Report on the Economic Well-Being of U.S. Households in 2024 – May 2025.”

It found that nearly 25% of BNPL users paid late in 2024, up from 18% in 2023.

There is also a problem with some Americans “loan stacking,” where several BNPL agreements are made at the same time, according to the Consumer Financial Protection Bureau (CFPB).

“Many BNPL borrowers originate several loans simultaneously, a practice that is particularly pronounced during the holidays, when BNPL use tends to spike.”

This juggling of multiple BNPL loans simultaneously, and “the growing reliance on BNPL loans might mask economic stress among American consumers,” reported the WSJ.

Fox News echoed this comment, noting that, historically, the service was mainly used for big-ticket items.

But this has since boomed, with those using buy now, pay later financing options also using it to “pay for necessities like food, due to the current economic environment,” according to the broadcaster.

Matt Schulz, chief consumer finance analyst at Lending Tree, told CBS News on June 4, that a quarter of Americans now use BNPL loans to pay for groceries, up 14% from last year.

He said that the spike in shoppers using these loans to buy food “clearly shows that there are a lot of people who are struggling with high costs at the grocery store and elsewhere, and who are looking for whatever ways they can find to help them make ends meet a little easier.”

AVOID BNPL PITFALLS

Financial experts have provided advice on how to avoid BNPL pitfalls – that could hit your credit rating.

For example, don’t overextend your finances by taking out multiple loans at the same time, said Consumer Reports.

Also, consider taking out autopay, to avoid being penalized – rather than manually paying off your loans bill each month

Or, ideally, simply pay for any big-ticket item in full – and don’t use the buy now pay later option at checkout.

But this means you will have to save the funds to do so, before making that purchase.

If possible, get a credit card: Ed Mierzwinski, senior director of federal programs at the nonprofit U.S. Public Interest Research Group, told CR that while not everyone can use a credit card, those fortunate enough to do so enjoy better financial protections by using one instead of BNPL.

That’s because they’re protected by the Fair Credit Billing Act, which also provides protections for items that are damaged on delivery or never received at all, he said.

BOOM IN LOANS

The CFPB said that, in recent years, “online and brick-and-mortar merchants have increasingly partnered with BNPL lenders to offer (loan) products to customers as a method of payment at checkout.”

These loans are readily available from financial tech firms including Affirm, Klarna and PayPal, as well as Apple.

The bureau published a 35-page report in January, which said that BNPL loans – where zero-interest loans are paid in four or fewer installments – have grown rapidly in the U.S. since 2019.

But BNPL lenders don’t usually share details of loan performance information – so it is a mystery as to how people are coping with these payments.

MYSTERY

They have remained off the radar, until now, which explains Fico’s interest in this service.

The Consumer Financial Protection Bureau said its research found that 21% of consumers with a credit record financed at least one purchase using BNPL in 2022, the most recent year of data.

The average purchase amount was $142 at that time.

FICO is launching its new credit-scoring model and offering it alongside its current one from fall.

The WSJ said that, “Banks and credit card-companies will evaluate the new data, but don’t have to rely on it.”