FICO announced this week that buy-now-pay-later loans will now be included on credit reports and credit scores.
The new credit scores will be “offered side-by-side with existing versions of the FICO Score,” FICO said. FICO said its new credit score methodology comes after a yearlong study “confirmed that a unique consumer behavior associated with BNPL loans is the potential for a large number of these loans to be opened within a short period of time.”
“Buy now, pay later loans are playing an increasingly important role in consumers’ financial lives,” said Julie May, vice president and general manager of B2B Scores at FICO. “By expanding our FICO Score 10 Suite with new models designed to incorporate BNPL data, we’re enabling lenders to more accurately evaluate credit readiness, especially for consumers whose first credit experience is through BNPL products. This innovation also supports our mission to expand financial inclusion by helping more consumers gain access to credit.”
Credit reports will begin carrying BNPL data starting in the fall.
According to NerdWallet, more than 55% of American consumers have used buy-now-pay-later services. About one in five admitted to paying late fees or interest due to missed payments.
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The Consumer Financial Protection Bureau noted there was a tenfold increase in usage of buy-now-pay-later programs during the pandemic. Last week, the CFPB issued new rules requiring buy-now-pay-later services to provide the same type of consumer protections offered to credit card users. Unlike credit cards that generally have high interest rates, buy-now-pay-later programs usually do not. They instead break payments into several monthly installments.
However, consumer groups have expressed concern that these programs could cause more people to go into debt by buying items they couldn’t otherwise afford.
