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yesterday

FICO to Add Buy Now, Pay Later Loans to Credit Scores This Fall

Greater visibility into short-term lending repayments promises more accurate risk assessments for lenders

A sign advertising buy now, pay later firm Klarna.
FILE - A woman walks by a sign "Buy now pay later" at a store in Bangalore, India, on Sept. 10, 2009. (AP Photo/Aijaz Rahi, File)
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Overview

  • FICO will offer a new credit score model in the fall that factors ‘Buy Now, Pay Later’ loans into consumer scores as an optional tool for lenders.
  • The model is designed to expose repayment behavior on interest-free, four-installment BNPL plans that have largely been excluded from traditional credit reports.
  • Widespread uptake could be slow since not all BNPL providers report data to credit bureaus and lenders must opt in to use the new scoring option.
  • A joint FICO-Affirm study of over 500,000 BNPL borrowers showed that users with five or more on-time repayments generally saw their credit scores rise or remain stable.
  • Advocates caution that integrating BNPL data may hurt credit-constrained consumers and note that average BNPL loans of about $135 may yield only modest score changes.