Future credit assessments to include Buy Now, Pay Later loan repayment history
In a significant shift for credit scoring, FICO, the company behind the most widely used credit scoring system, has announced plans to factor Buy Now, Pay Later (BNPL) payment histories into its calculations. This change, set to take effect this fall, is designed to offer a more comprehensive view of an individual's creditworthiness, particularly benefiting BNPL users who may have limited traditional credit history.
According to Sara Rathner, a credit card expert with NerdWallet, this update makes credit scoring more inclusive of BNPL payment behaviors and recent financial patterns. New models like VantageScore 4.0 and FICO 10T consider data traditionally excluded from older models, such as rent payments, which is significant for BNPL users who regularly pay on time.
The focus on recent trends and consistent debt paydown means BNPL users who manage these payments responsibly could see a quicker positive impact on scores than before. This change could increase the number of BNPL users qualifying for loans or credit products by offering a more complete credit profile that includes their BNPL activity as part of overall financial responsibility.
However, there is some uncertainty as lenders can choose which score to use per transaction, potentially creating inconsistencies in scoring for BNPL users depending on the lender’s choice and how BNPL data is reported. Rathner emphasizes the importance of prioritizing all loan payments, especially BNPL plans, to ensure a positive impact on credit scores.
It's essential to note that consumers should not expect an overnight shift in their credit scores due to BNPL usage. The process of lenders adopting new scoring models is slow, and a large number of lenders adopting the new FICO scoring model is necessary for BNPL payments to impact loan applications.
A new NerdWallet survey shows more than half of Americans have used Buy Now, Pay Later services. This change could open up new opportunities for first-time buyers and those with limited traditional credit history, making it easier for them to access loans and credit products.
While the impact of BNPL usage on credit scores for consumers who are not diligent in paying off their plans is not yet clear, it's crucial for all BNPL users to be mindful of their payment habits. Making a late payment on BNPL plans can quickly hurt credit scores.
In conclusion, FICO’s updates make credit scoring more inclusive of BNPL payment behaviors and recent financial patterns, likely improving BNPL users’ credit evaluations and opportunities, especially for first-time buyers and those with limited traditional credit history. As always, prioritizing timely payments is key to maintaining a healthy credit score.
[1] Source: FICO press release [2] Source: NerdWallet interview with Sara Rathner [3] Source: Bankrate article [4] Source: Experian blog post [5] Source: Creditcards.com article
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