FICO To Incorporate Buy-Now-Pay-Later Loans Into Credit Scores (axios.com) 81
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 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.
Coincidence this is timed with increased defaults? (Score:5, Informative)
As they should (Score:3)
I assumed it already was considered, and counted negatively as a low-quality debt.
Re: As they should (Score:2)
Re: As they should (Score:4, Insightful)
I think even one payday loan is a huge red flag. Anybody who uses those has a serious lack of sound judgement.
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Or perhaps a serious lack of better options.
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Better planning is always an option. Like pooling a rainy day fund, which should be in addition to investing, say dropping $100/month into an index ETF, and only using the latter when your rainy day fund is exhausted. And you're not talking about an "I lost my job" scenario, because this IS a payday loan. If you're already living paycheck to paycheck, you're living above your means, which is also poor planning.
And to those who say they should be banned or have the law make their business model unprofitable,
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Sadly, from my observations, not everyone is in a position to save any significant amounts of money.
Even with 40 hours a week, it'd be difficult to survive on minimum wage while still having anything that qualifies as a satisfactory life.
Working multiple jobs and needing to split resources with roommates is not a very good life and is outside the bounds where I'd consider it a reasonable solution.
Re: As they should (Score:2)
Satisfactory according to what standard? Just the fact that you live in this country at all already means you're at a much higher standard than half of the planet.
If you're truly in a position where you can't save even small amounts like that, then your living situation was never sustainable to begin with. Something HAS to give, whether that's more of your free time or where you're living. Example: You're making minimum wage but you feel entitled to live in the SF bay area. That's a self-inflicted financial
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If you're truly in a position where you can't save even small amounts like that, then your living situation was never sustainable to begin with. Something HAS to give, whether that's more of your free time or where you're living. Example: You're making minimum wage but you feel entitled to live in the SF bay area. That's a self-inflicted financial hardship.
This is more about the bay area liking to have some people around working minimum wage jobs, if everyone doing so moved away... The other issue IMHO is -
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This is more about the bay area liking to have some people around working minimum wage jobs, if everyone doing so moved away...
And by choosing to be the minimum wage derp in a city you can't afford, you're really just subsidizing somebody else's lifestyle. IMO it's better to just not be the derp, but to each his own.
The other issue IMHO is - sure you can go move out to the boonies where it's cheaper to live - but then there's no jobs.
That is absolutely not true, and more to the point, this is a false dilemma -- there are a lot more choices than "overpriced city" and "boonies".
Or you now need a car - great, you're not saving money, you've just shifted from rent to car costs.
I still haven't even had a car loan in my life. My very first car I paid $3,000 for, which was right around the time I started college. And I only paid that much because it was
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You should know that there are a lot of people who can't afford a rainy day fund let alone also dropping $100/month into any investment (and yes, there are a lot people who could afford to do that but don't.)
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Sure.
But despite your best planning, shit happens.
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I think even one payday loan is a huge red flag. Anybody who uses those has a serious lack of sound judgement.
Millions of Americans have regular payday loans, 10s of millions if not hundreds. They're called Credit Cards.
When I was a lad (which for context, was some time after Jesus was a lad) "Living pay cheque to pay cheque" was a shameful admission that you had no savings and basically relied on your entire pay to service your bills, rent/mortgage and had some left over for necessities. Now it's almost a positive as it means you're not going into debt every month to pay for your day to day bills and necessitie
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Millions of Americans have regular payday loans, 10s of millions if not hundreds. They're called Credit Cards.
Not even slightly the same as payday loans. Payday loans have universally unfavorable terms compared to credit cards. No matter what, you pay interest and/or fees for them, and that's assuming the interest you pay is anywhere near comparable. And by the time you can even think about doing a chapter 7 on payday loan debt, they've likely already garnished their money back, and some.
Credit cards, on the other hand, can earn you money if used correctly. The first credit card I had was when I was 18, and it had
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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)
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No it's not. You're talking about the "Rent-to-Own" industry (Aaron's, Rent-a-Center, etc). This is about the "quick finance" people where you're on a product page online and instead of paying the amount you're offered the ability to break it up into four or more payments, and there's little or no interest. Affirm is one of the players here -- they are even mentioned by name in TFA. Paypal also offers this option when you use PayPal checkout.
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Nobody half smart has done layaway since probably the 1980s.
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With layaway:
1). You can take advantage of a sales price, even if you can't afford the item while the sale is on.
2). You can take advantage of the fact that the item is in stock and available - which may not be the case whenever you have the money to pay in full.
3). You don't have to have the skill/discipline of saving money.
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It also existed up into the 90s at major retailers as "Layaway" Only difference is you didn't get the immediate satisfaction of having the item. The store held onto it in the back room till you paid off what you owe on it.
That's not really the same at all for precisely the reason you give. You don't take possession of the merchandise until it's paid off, so it's not a debt. The retailer still maintains control and if you didn't pay it off they could sell it to someone else at full price. They don't take any loss by your inability to pay. Layway plans were only a few months at most so depreciation of the merchandise wasn't a concern. You could even cancel the layaway and get the money back you had paid up to that point (minus
Re: "Buy now, pay later" (Score:2)
I don't understand the culture of "let's buy stuff, promise to pay it off, then cry foul when the bill is due!" Medical debt is one thing because you were stuck between a rock and a hard spot, but...a couch? an iphone? And these guys aren't exactly loan sharks. They're not going to cut off your thumbs. They'll send you some strongly worded letters, maybe call you, maybe garnish your pay (though generally not worth the trouble for debts this small) and that's about it. You're going to have a harder time borr
Regarding penaties in ancient times (Score:3)
From: https://mankatobankruptcy.com/2018/02/06/debt-punishment-st-peter/
A few of the most notorious punishments for debtors in history include:
Debt Slavery Laws: Up until 326 BCE, “debt slavery” in Rome and Greece was a common practice. Because there was no option for bankruptcy, debtors would instead pledge their labor as a security interest on loans. Creditors could take advantage of this security pledge and keep debtors in a slave-like internment until they could
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Re: "Buy now, pay later" (Score:2)
Not loans. Loan sharks.
Predatory.
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It's still predatory (Score:2)
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.
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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
Re: "Buy now, pay later" (Score:2)
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.
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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.
Or you get hospitalized, or just really busy and forget, or you leave payoff to the last minute and the 'net is down, or whatever. This will happen to a percentage of people, so they will make a percentage on top of fees. It might not happen to you, but it definitely happens to people.
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Amazon basically offered me a 0% interest loan for 6 months, why not take advantage of it?
Honestly, I've tried to think of a reason and failed. The only thing that comes to mind is that I want whatever it is now but I don't have enough to pay for it outright.
Unless you're someone whose accountant has their own accountant* keeping "liquid" assets for a few months longer isn't going to net you more than a few quid. Current accounts (what you call checking accounts) generally pay almost exactly bugger all in the way of interest. So, if you can comfortably afford the entire purchase price, the only
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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)
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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
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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).
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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?
I think credit scores are a terrible idea to begin with and I'm glad I've never lived in a country where one is necessary...or even commonplace. Sure Experian try to sell it but lenders all do their own analysis and set their own criteria when it comes to lending. It makes applications a bit more complex but realistically if you can't handle filling our a multi-page online form to get 1000's if not 100's of thousands of pounds, you really shouldn't get it. It forces you to know what your income is, what you
This is also what Moody's does (Score:1)
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.
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Re: This is also what Moody's does (Score:3)
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Japan is the largest buyer of U.S. debt [reuters.com]. China is second.
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Mostly as is 2%?
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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
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(update) I looked up some data from 2024. It seems that China and Japan have traded places on owning US debt.
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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.
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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]
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No. [pgpf.org] Most of that debt is owed to Americans. 23% is held by the Federal Reserve, 22% by mutual funds, 9% by state and local governments, 8% pensions, and 5% insurance companies. 30% is held by foreign investors and most of those are not China.
We're not bankrupt, since we're still able to make our payments, but at 125% of GDP or so, it is getting worrisome.
How America improves their ratings. (Score:2)
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
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Iâ(TM)m guessing the USA will improve their ratings once the banks carrying $100M+ in BNPL
How the heck would banks affect the US national debt at all? I'm also relatively certain that when there's a fixed payment of X for Y months, the lender can't just decide, whelp, no, I'm now going to jack the interest rate for...reasons. This whole comment is bizarre leaps of logic.
Rightly so. (Score:2)
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.
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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
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Re: Rightly so. (Score:2)
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.
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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.
Affirm And FICO Sitting In A Tree... (Score:2)
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
Oh Lord, (Score:2)
Won't you buy me
a color TV.
Dialing for Dollars
is trying to find me.
We need to educate people that BNPL is bad (Score:2)
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
Friendly Reminder (Score:1)
Credit scores are completely made up and inherently racist.
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That reminder was neither friendly nor accurate.
If you are in the business of lending money, you primarily want to know if you're going to get your money back. You don't care about the color of the person's skin, you just want your money back with interest.
If your contention is that certain races are more likely to have a low credit score simply because of their race, then YOU my friend, are the racist one.
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If you are in the business of lending money, you primarily want to know if you're going to get your money back.
Credit scores don't actually give that information. It is inferred assumption of whether you will get your money back or not.
If your contention is that certain races are more likely to have a low credit score
https://digitalcommons.law.uw.... [uw.edu]
Nope, their algorithms are inherently racist. A person's score is almost entirely arbitrary. And there is no transparency, so no one actually knows what helps or hurts your credit score. Hell, sometimes the credit bureaus don't even know if the information they're scoring is legitimate. These scores are increasingly being used for non-financial servic
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So you claim that both:
1) there is no transparency in how credit scores are calculated, meaning that you don't know how they are calculated,
2) and that you know they are inherently racist.
Do you know how they are calculated, or don't you? You can't have it both ways. If you don't know how they are calculated, how can you insist that they are racist? You're talking out of both sides of your mouth.
The makeup of the FICO score is indeed published. https://www.myfico.com/credit-... [myfico.com]
It's not a perfect system, but
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Do you know how they are calculated, or don't you? You can't have it both ways. If you don't know how they are calculated, how can you insist that they are racist? You're talking out of both sides of your mouth.
Are you stupid? Just because we can't see/know the calculations, doesn't mean we can't measure outcomes and compare them. And when you do that, the results don't make sense.
That FICO link doesn't actually tell you anything. It is nowhere near as simple as they are trying to make it seem.
It's not a perfect system, but it's the best proxy anybody actually has, for the credit worthiness of an individual.
Except that it's not, because it literally doesn't actually do that.
And there is definitely NOT a component of the score that factors in race.
Of course not, not directly. The algorithms just naturally reinforce racist stereotypes and biases of those that created them.
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I see you're struggling to make a coherent point, since you've turned to insults. But let's move past that and address the core issue here.
Your argument seems to be that low credit scores correlate to people of certain races, therefore low credit scores are *caused by* racism. As you will often see posted around here, correlation is not causation.
To prove racism, it's not enough to look at dispirit outcomes for different people groups. To prove racism, you have to show that *all else being equal* the score
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Your argument seems to be that low credit scores correlate to people of certain races
No. Hence the insults. You keep assuming things that are neither said nor inferred, because you are unwilling to read and critically think.
If a black person and a white person have the same income, same payment history, same number of years of credit history, would they get the same score?
No, they won't. That's what actually analyzing the outcomes reveals.
I know this because I spent years doing audits with the Consumer Financial Protection Bureau, whose mandate was to ensure that no racial profiling was occurring by lenders. ... My mortgage company would have endured significant fines and penalties, even the loss of our license, if we did not pass this audit.
The CFPB isn't any better at rooting out their own biases. Your mortgage company is just as biased without even realizing it.
The bias of the credit score is one and only one thing: Will the borrower be able to repay, and are they likely to repay.
You're already biased to believe that credit scores are legit. So, it doesn't matter what proof I have, you won't believe it anyway. I doubt you even looked at the link I sent a wh
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Actually, I did look at your link. The paper argues that credit scores are a problem for society because they are:
- arbitrary
- opaque
- and have dispirit impact.
It argues that they are *arbitrary*, in part because the different agency's scores differ by as much as 50 points, for 29% of people. That comes out to about 10%, which is actually quite consistent, considering that the data comes from different sources. For the other 71%, the scores are even closer together, which points to a consistent approach to
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It argues that they are *arbitrary*, in part because the different agency's scores differ by as much as 50 points, for 29% of people. That comes out to about 10%, which is actually quite consistent, considering that the data comes from different sources. For the other 71%, the scores are even closer together, which points to a consistent approach to scoring.
Not consistent enough.
It argues that they are *opaque*, asserting without evidence that nobody knows how the scores are calculated. Log on to your bank account, your bank will tell you how your own profile affects your score. Web sites provide calculators that let you run scenarios to see how changes to your behavior, will change your score. https://www.creditkarma.com/to [creditkarma.com]... [creditkarma.com] This argument in the paper is just plain false.
Sure, if you think the their vague explanations count. The Credit Karma is not a calculator. There is no credit calculator, only simulators and estimators. Per their own website "The Credit Score Simulator is an educational tool. Explore, adjust and ponder, but just remember these are estimated outcomes and not predictions."
They allow you to get a generalized idea of how credit works, but that isn't the same thing as actually *knowing* how it works. There are no credit score calculator
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So let's take everything you said at face value. Your arguments do not support a conclusion that credit scores are racist. Despite all the limitations and caveats and inaccuracies that may exist, that does not make credit scores *racist*. Not opaqueness, not inaccuracy, and not unintentional dispirit impact.
So what would be *your* solution? If you personally rent out your old house (which won't sell because mortgage companies are too racist), what technique would *you* use to assess whether a potential rent
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So let's take everything you said at face value. Your arguments do not support a conclusion that credit scores are racist. Despite all the limitations and caveats and inaccuracies that may exist, that does not make credit scores *racist*. Not opaqueness, not inaccuracy, and not unintentional dispirit impact.
I think they do. Guess its a good thing, for me in this argument, there have been numerous other studies at various points in time that also point out these differences that seem to target minorities. And, I will say this again, I am not suggesting that the racism in the credit scores is *egregious* or *blatant*, but rather ignorantly *systemic* much like many other things in our society - education, employment, housing, healthcare, and especially criminal justice.
So what would be *your* solution?
My solution would first involve forcing all
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So, you insist that credit scores are racist. Let's examine the specific components of the credit score, as listed here: https://www.myfico.com/credit-... [myfico.com]
1. Amount owed. This is the amount of money borrowed, compared to the available credit. A borrower that has maxed out their credit cards, will score low in this measure.
2. Payment history. Has the person missed required payments?
3. Length of credit history. Young borrowers will not score as highly as older borrowers.
4. Credit mix. Some types of credit, suc
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Maybe you can comprehend a list better:
1. Those are not the only things that affect your credit score. If you think it is, then you were never qualified to work at a mortgage company.
2. Any of them *can* be racist depending on the actual algorithms used (which you can't see and therefore cannot dispute that they 100% are not racist)
3. It's systemic racism, which you (and FICO) have yet to prove there isn't any. And being systemic, that means that Consumer Financial Protection Bureau also has systemic racist
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So, you insist that the *must* be some other component in the FICO score, that Experian is willfully hiding / lying about, that makes it racist. But you have no idea what that component would be, or you'd be trumpeting what that is. In other words, you're making it up.
This line of reasoning is no different from playing a dice game, and the loser insisting that the dice are weighted, not because they have evidence that the dice are weighted, but because they are losing. It's also no different than Trump clai
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This line of reasoning is no different from playing a dice game, and the loser insisting that the dice are weighted, not because they have evidence that the dice are weighted, but because they are losing.
Well, if I am not allowed to measure the dice to ensure they aren't weighted and after many rolls the dice are nowhere near the statistic norm, then I can only assume that they are weighted in some fashion. Why should I trust that they aren't? They've offered no proof that they aren't weighted. Prove to me they aren't weighted and I don't have an issue.
Nothing you've provided offers any proof that there is *no* systemic racism, whereas there is data that suggests there is systemic racism. Even if it's just
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It's not my job to prove that there is no racism. If racism is alleged, it's up to the one claiming racism, to prove that it exists. It's not reasonable to demand proof that something does *not* exist.
As we have seen in this conversation, racism is in the eye of the beholder. If they *did* publish the exact details, some would still claim bias, just as they do today with standardized tests, which *do* publish their exact algorithms. They claim (without proof) that the questions themselves are racist.
If we t
don't care (Score:2)
Using BNPL should automatically lower the score (Score:3)
Even for people who pay them back on time.
Simply using BNPL is automatically a sign of a poor understanding of budget control and is likely to indicate a higher credit risk. People who understand creditworthiness and want to maintain their own good credit, will avoid these deceptive loans at all cost.