USING Buy Now, Pay Later (BNPL) as an option will soon impact credit scores.
BNPL is an option shoppers may choose at checkout allowing them to pay for a purchase in small, equal payments – typically with no interest, according to The Federal Reserve.
The credit scoring agency, FICO, announced back in June that it would now factor in BNPL loans into credit scores.
FICO is a brand that establishes credit scores to help lenders determine how likely an individual is to repay a loan.
Starting in fall 2025, this change makes them the first agency to do so.
The new addition also aims to expand FICO’s mission to promote financial inclusion “by helping more consumers gain access to credit.”
“Buy Now, Pay Later loans are playing an increasingly important role in consumers’ financial lives,” Julie May, the vice president and general manager of B2B Scores at FICO, said in a press release.
TROUBLE BREWING?
The Fed found that 15% of people used this payment option in 2024.
Additionally, the agency revealed that 72% of people using BNPL with an income under $50,000 used it because it was the only way they could afford the purchase.
According to FICO’s website, 90% of the top U.S. lenders utilize their services.
The potential impact would take place when consumer look to apply for credit cards, mortgages or auto loans, as lenders typically look at credit scores.
Before BNPL services started providing reports to credit reporting agencies, there was no impact on credit scores.
Plus, the Consumer Financial Protection Bureau confirmed in 2024 that credit scores would not be hurt or improved by consumers’ BNPL repayment behavior because of the lack of reports.
However, scores may have been impacted.
If consumers didn’t pay back their BNPL loan, it would be turned over to a debt collector, which could hurt credit scores.
With FICO’s new rule, BNPL information will impact credit scores, especially if payments aren’t made on time.
On the flipside, making payments on time will help your credit score.
Adam Rust, director of financial services at the Consumer Federation of America, told NPR in July that without this new policy, there was a blind spot for lenders.
What’s a good credit score?
FICO rates credit scores on a scale of poor to exceptional based on the average score range of 300 to 850.
FICO Ratings
• Poor: Less than 580
•Fair: 580-669
•Good: 670-739
•Very Good: 740-799
•Exceptional: Over 800
“In the past, when buy now, pay later loans have not been reported to credit bureaus, that has meant that credit card lenders couldn’t see the presence of that debt when they were making a decision on how much credit to offer,” he told NPR.
“And that set up a possibility where a lender might offer more credit than a person can reasonably afford to repay.”
“We want people to get the credit that they need — but we don’t want lenders to be flooding the market with credit beyond what’s safe and reasonable for consumers,” Rust added.
An exact time frame for when consumers can expect to see BNPL information impacting scores has not yet been specified.
FICO told USA TODAY on September 12 that its two credit score systems the agency developed to incorporate these loans are not yet live. FICO maintained that the systems are set to be available this fall.
Some BNPL service providers have begun reporting consumer habits to credit agencies, such as Klarna providing insight to TransUnion and Affirm sharing reports with Experian and TransUnion, according to USA TODAY.
However, FICO is the first to establish a scoring system incorporating this payment plan option.
