By Cora Lewis
NEW YORK (AP) – Millions of “Buy Now, Pay Later” loans quickly affect the credit scores of millions of Americans who use their loans to buy clothing, furniture, concert tickets and take-out.
Scoring company FICO said Monday it is rolling out a new model that considers short-term loans into consumer scores. The majority of lenders use their FICO score to determine the borrower’s credit value. Previously, loans were excluded, but I’m buying them now, but later companies began voluntarily reporting payment loans to another credit department, Experian, in April.
The new FICO score will begin in the fall as an option for lenders to increase visibility into consumer repayment behaviors, the company said. Still, not everything is available to buy right now. Paying later businesses will share data with the credit bureau and not all lenders will choose to use the new model, so hiring can be time-consuming, according to Adam Rust, director of financial services at the nonprofit Consumer Federation.
Here’s what you need to know.
Why did loans not appear in credit scores before?
Usually, if you buy now, you pay a later loan, and the consumer pays for a particular purchase in 4 installments over a six-week period, with a model that is more like Laeaway than a traditional credit card. Loans are sold as zero profits and most often do not require credit checks or soft credit checks.
The three main credit reporting agencies, Experian, Transunion, and Equifax, do not yet incorporate standard methods of including these new financial instruments in reports, as they do not follow existing models of lending and repayment. A fair Isaac Corporation score, FICO independently chooses to use the department’s data to calculate its own credit score and pilot new scores that take into account loans.
Why is this important?
BNPL providers promote plans as a safer alternative to credit cards, but consumer advocates warn about “lone stacking,” where consumers get more loans at once at several companies. So far, the industry has little recognition of this practice, and opacity has led to a warning of “phantom debt” that could hide consumer health.
In a statement, FICO said their new credit score model takes into account the growing importance of loans in the US credit ecosystem.
“We are pleased to announce that Julie May, Vice President and General Manager of FICO’s Inter-Business Scores,” said: “We are ensuring lenders can more accurately assess their credit readiness, especially for consumers with initial credit experience through BNPL products.”
What does FICO want to achieve?
FICO said the new model will responsibly expand access to credit. Many users of BNPL loans are younger and consumers who may not have a good or long credit history. In a collaboration with AFFIRM, FICO trained new scores on a sample of over 500,000 BNPL borrowers and found that consumers with five or more loans typically remained increased or stable under the new model.
For consumers who pay off their BNPL loans in a timely manner, the new credit scoring model will help improve their credit scores and increase access to mortgages, car loans and apartment rentals. Currently, loans do not normally contribute directly to improving your score, but they may have missed payments, but they may be hurting or dying your score.
Since March, credit scores have fallen sharply in millions as student loan payments resumed and many student borrowers have realized they are unable to make regular payments on federal student loans.
What are the risks and concerns?
Nadine Chablier, senior policy and litigation lawyer at the Centre for Responsible Lending, said her main concern is that the integration of loans into scores could have unexpectedly negative effects on those who have already been credit-limited.
“There’s not much information about how integrating BNPL into credit scoring will work,” says Chabrier. “FICO simulated the impact on credit scoring through its research. We found that some users’ scores increased. However, considering what didn’t affect credit last week, it’s a bit difficult to know what the outcome will be, even if you don’t have much information about modeling this week.”
Chabrier cited a study that showed that many BNPL users had revolving credit card balances, lower credit scores, late payments and existing liabilities. Women of color are likely to use loans too, she said.
“It’s a trustworthy community,” Chablier said.
Do consumers see immediate benefits?
Rust, the American Consumer Federation, said he doesn’t think this is a game changer for consumers who already have a credit profile.
“Are we at the point where using BNPL loans dramatically changes your credit profile? Probably not,” he said. “I think it’s important that people have reasonable expectations.”
Rust said the average BNPL loan is $135 and that consistently paying off such small loans could prevent the credit score moving the needle significantly from changing.
“It’s not going to 620-624. It’s going to 620-780,” he said.
Still, Rust said that increased transparency around loans could create a more accurate picture of consumer debt, improve accurate underwriting, and ensure that consumers do not overdo themselves.
“This is addressing the issue of ‘phantom debt’ and that’s a good thing,” he said. “That’s because it could prevent people from getting deeper and deeper into debt that they can’t afford.”
The Associated Press is supported by the Charles Schwab Foundation for education and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.
Original issue: June 27th, 2025, 12:53pm EDT
