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FICO To Incorporate Buy-Now-Pay-Later Loans Into Credit Scores (axios.com) 50

Posted by msmash from the moving-forward dept.
FICO credit scores will begin incorporating buy-now-pay-later data for the first time. From a report: With over 90 million Americans expected to use BNPL for purchases this year, critics argue that existing credit scores paint an incomplete picture of an individual's ability to pay back loans. Fair Isaac Corp., which runs FICO, said Monday that it will launch two separate credit scores including BNPL data.

FICO Score 10 BNPL and FICO Score 10 T BNPL will "represent a significant advancement in credit scoring, accounting for the growing importance of BNPL loans in the U.S. credit ecosystem," the company said in a statement. "These scores provide lenders with greater visibility into consumers' repayment behaviors, enabling a more comprehensive view of their credit readiness which ultimately improves the lending experience," FICO added.

FICO To Incorporate Buy-Now-Pay-Later Loans Into Credit Scores More | Reply

FICO To Incorporate Buy-Now-Pay-Later Loans Into Credit Scores

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  • Coincidence this is timed with increased defaults? (Score:5, Informative)

    by sinij ( 911942 ) on Monday June 23, 2025 @02:36PM (#65470467)
    It was widely reported in financial press that BNPL (buy now pay later) defaults rates increased [finance-commerce.com]. I don't think it is coincidence that these will factor into one's credit score.

    • I assumed it already was considered, and counted negatively as a low-quality debt.

      • I don't know about quality, but on my file there is a separate section for so-called "short-term debt". A mortgage on a house or loan for a car are not the same as paying your car insurance monthly or buying a phone over 12/18/24 months. Those things are fine, but as other posters have mentioned someone who has had lots of payday loans is probably a risk.

    • Re: (Score:2)

      by AvitarX ( 172628 )

      I assume that's almost definitely the case.

      But also the fact that they are getting very popular.

      I'd want to know if a potential customer has $1500 in BNPL for $750/month minimum payment before I left them money.

  • "Buy now, pay later" (Score:4, Insightful)

    by Valgrus Thunderaxe ( 8769977 ) on Monday June 23, 2025 @02:44PM (#65470487)
    This describes a credit card, exactly.

    • Not loans. Loan sharks.

      Predatory.

      • Not always. I bought a pricey e-bike on Amazon with their buy now pay later option. I had the cash in the bank to pay for it outright, but Amazon basically offered me a 0% interest loan for 6 months, why not take advantage of it?

        • They sell your information in your credit application. And you run a small risk that the company is just bad at figuring out how to handle autopay options and will end up charging you one late fee and possibly removing the 0% rate and kicking you back up to the 19.5% default rate the offer has in the fine print.

          • That's not entirely accurate. That is a revenue source in some models, but it's emerging and the value of market data, while valuable, may not be the biggest source of revenue for a BNPL lender.

            No, the biggest source of BNPL revenue is merchant fees, which start at 2% and go as high as 8%, much higher than credit cards which range from 1 to 3%. The stores like these because they have clearly demonstrated that they can boost sales, and will take the merchant fee hit if their sales go up by 15-20%, and a

        • If you're going to use the money they loan you to invest, then there's a good reason to do it. If not then you're just creating the chance of defaulting by accident, which is a good reason why not.

          • I wouldn't even say it needs to be used to invest being that most BNPL plans are 4-6months. Assuming you actually have the cash to buy it in full in your account already and are just using it for the "Free Loan" then as long as you don't spend the cash in your account and keep it there for an emergency then the only way you can default on it is if you had an emergency that you had to spend the money.

    • This describes a credit card, exactly.

      It does not. The fact you equate the two shows you have very little understanding of the lending industry. They operate in fundamentally different ways.

      Here's the TL;DR: Credit Cards are revolving credit sources, universally accepted and all products purchased on them are amalgamated. BNPL loans are single purchase loans with a fixed repayment plan.

      They work differently. They have different risk. Different interest profiles. And until today they affected your credit rating in different ways.

  • Really? (Score:5, Insightful)

    by RobinH ( 124750 ) on Monday June 23, 2025 @02:50PM (#65470507) Homepage
    I'm honestly shocked that existing credit scores don't take BNPL loans into account. The one time I bought a piece of furniture on credit, that ended up on my credit report. Why wouldn't other forms of consumer credit be included?

    • Re: (Score:2)

      by AvitarX ( 172628 )

      Because the industry crept up outside of the traditional lending environment.

      They wouldn't formally check your credit, and would report it unless you defaulted. The idea being that small short term loans would be pretty secure and the money in theory was to be made on fees to merchants (the pitch was that by making checkout easier they could increase sales for a merchant and get a few percent cut (effectively getting 18% APR (3% on 2 months)).

      In an effort to grow they started being available everywhere for

      • If you're using BNPL on door dash, you really should probably be rethinking your priorities and instead going to the grocery store and cooking your own food at home.

        • Re: (Score:2)

          by AvitarX ( 172628 )

          I don't disagree.

          I was absolutely appalled the first time I ordered pizza and it suggested affirm.

          But I also know that if I were to lend someone money I'd absolutely want to know they were doing that (or more accurately make sure they weren't doing it).

  • The "big three" credit rating companies - in particular Moody's [wikipedia.org] - do this for company bonds and bonds issued by countries. Vaguely relevant because the USA was downrated a month ago, an indication that they are buying on credit.

    • The US is 36 trillion dollars in debt, mostly to Communist China. In any sane place, that's called "bankrupt".
      • As the saying goes, if you owe the bank a thousand you have a problem, but if you owe the bank ten million the bank has the problem. Perhaps we should update it to account for inflation.
      • The US is 36 trillion dollars in debt, mostly to Communist China.

        Japan is the largest buyer of U.S. debt [reuters.com]. China is second.

      • Re: (Score:3)

        by AvitarX ( 172628 )

        Mostly as is 2%?

      • Foreign investors only account for a quarter of the $36T of federal debt. China's piece is the biggest of that foreign debt, but it's not anywhere near half so fails to meet the definition of "mostly".

        More than half is held by US investment firms and individuals. That means mostly the federal government owes US citizens and US businesses a LOT of money. A default would wipe out millions of people financially, to a degree that we'd have a cascade of mortgage defaults that would be a second punch to our econo

        • (update) I looked up some data from 2024. It seems that China and Japan have traded places on owning US debt.

      • In any sane place, that's called "bankrupt".

        In any sane place its called business as usual. The only question is whether you can service that much debt and the United States is nowhere close to that and its still a long way below its taxing capacity.

      • The US is 36 trillion dollars in debt, mostly to Communist China.

        Actually, 80% of the U.S. National Debt is domestically owned.

        The Federal Reserve and various Mutual Funds own the lion's share.

        Banks, State/Local governments, pension funds and insurance funds round out the other big owners of U.S. debt.

        China is way down the list, after Japan and just before the U.K.

        https://www.pgpf.org/article/t... [pgpf.org]

    • Vaguely relevant because the USA was downrated a month ago, an indication that they are buying on credit.

      Directly relevant because the USA is loaning credit out to those who shouldn’t have it.

      I’m guessing the USA will improve their ratings once the banks carrying $100M+ in BNPL debt start giving those they have loaned to their just desserts in the form of 20%+ interest rates and sub-500 credit scores for the next few years.

      Not even gonna apologize for being that direct about the consequences either. The fucking arrogance steaming from the ignorant masses racking up debt with zero consequence needs

  • Using any kind of BNPL indicates a major risk. And it's not even about living paycheck to paycheck or whether BNPL amount gets paid back on time or not. Using BNPL indicates that the person has major gaps in financial education, doesn't understand how predatory BNPL schemes and their rates are and therefore using these services makes a BNPL customer a high risk customer overall.

    • Yeah someone with major gaps in their financial education would pay cash for something when they're being offered 0% 0-fee financing. Time value works in both directions.

      • Yeah someone with major gaps in their financial education would pay cash for something when they're being offered 0% 0-fee financing. Time value works in both directions

        For anyone who is good at finances and not credit card debt its a no-brainer. But there are a bunch of people who think debt is evil. They don't understand how to manage their money so they believe various influencers who tell them debt is evil.

        These companies make money through fees paid by the merchant. Its a marketing tool. But that does not mean people can't get themselves into financial trouble with them if they can't make the payments. If you are a traditional lender, you want to account for that ris

    • Not all buy now pay later "loans" are predatory. It's about reading the fine print. I was on the market for an e-bike. Had the cash in the bank to pay for it outright but amazon offered buy now pay over 6 months 0% interest, no fees, Just total price divided by 6 and they auto debit your card every month till it's paid off. Why the hell wouldn't you take advantage of a 0% interest loan for 6 months and keep your liquid cash in the bank?
      • Unfortunately I don't think Amazon directly offers the buy now pay later administered by Amazon itself anymore. I still occasionally see BNPL offered on pricier items provided by a 3rd party BNPL administrator like Klarna or Afirm, etc. I'm guessing Amazon didn't want to deal with the hassle of BNPL themselves any more, maybe too many people were defaulting?

      • Because you get used to it, keep getting multiple agreements, until you've got so many running in parallel, racking up interest, that it becomes unmanageable and you start running into arrears.

        • Yes this can be a problem if you're doing BNPL for items under a couple hundred bucks or running multiple in parallel. In my case it was a one time thing for a purchase over $1k and essentially a no fee, 0% interest loan for 6 months keeping my cash liquid in my bank account for another purchase or emergency. In the end I could have just bought it outright. I wasn't using BNPL because I didn't have the cash to pay it in a lump sum.

        • Re: (Score:2)

          by Rinnon ( 1474161 )

          Because you get used to it, keep getting multiple agreements, until you've got so many running in parallel, racking up interest, that it becomes unmanageable and you start running into arrears.

          You've got the order of operations mixed up. You would first have to go into arrears for it to rack up interest, it will not rack up interest unless you go into arrears. That's precisely what is appealing about them, and what differentiates them from predatory loans, like pay-day loans, which can incur an interest rate of 400% from the minute you take it out.

  • What is Affirm’s revenue model and how does it make money?
    Affirm’s success is fundamentally aligned with consumers and merchants as we win when they win. The diversity of our business model is also a key area of strength for Affirm as we earn revenue through five primary channels.

    1. We generally earn revenue from merchants when we help them facilitate a transaction. This is commonly referred to as our merchant discount rate.
    2. Affirm generates revenue through the simple interest-bearing loan

  • Won't you buy me
    a color TV.
    Dialing for Dollars
    is trying to find me.

  • for your financial health.

    This could be done by following what we did to reduce the number of smokers in the 60s-80s:

    1. Incorporating mandatory financial literacy classes into the High school Curriculum.
    2. "Black Box" warnings when signing up and after each use of BNPL. (https://www.medicalnewstoday.com/articles/boxed-warnings)
    3. Sin tax: Making the transaction fee charged to the merchant paid for as a surcharge added in to the total cost at checkout.
    4. Ban on advertising BNPL in the media.

    Yes I know, some

  • Credit scores are completely made up and inherently racist.

  • I never used BNPL services. You get a better price offing to pay cash now.

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