Impact of Buy Now Pay Later Loans on Credit Ratings
In a groundbreaking move, FICO, the leading provider of credit-scoring models, has partnered with Affirm to integrate Buy Now, Pay Later (BNPL) loans into its scoring models, starting in 2025. This partnership marks a significant shift in the way BNPL loans affect credit scores [1][3][4].
From April 1, 2025, Affirm began reporting BNPL loan data to major credit bureaus such as Experian and TransUnion. This data sharing has enabled FICO to develop new credit scoring models—FICO Score 10 BNPL and 10T BNPL—that factor in BNPL loans without penalizing consumers for having multiple short-term BNPL loans. These models group BNPL loans together and incorporate their payment history into credit scores [1][3][4].
This change is particularly beneficial for younger consumers or those with limited credit histories, as it provides them with an opportunity to build or improve their credit scores if they make timely payments. It also supports financial inclusion by giving lenders better tools to assess creditworthiness for consumers whose primary credit experience is through BNPL products [1][2][3].
However, it's crucial to note that missing BNPL payments can negatively impact scores, much like other credit products. Early studies by FICO with Affirm data found that including BNPL had a modest effect—within about 10 points up or down—for over 85% of consumers studied, signalling mostly neutral to positive outcomes for responsible users [1][2][3].
Ben Danner, Senior Analyst at Javelin Strategy & Research, commented that BNPL vendors may shift their strategy to market loans as a credit enhancement tool. The Consumer Financial Protection Bureau (CFPB) also requested in a June 2022 blog post that consumer reporting companies should incorporate BNPL data into core credit files as soon as possible [4].
Potential regulatory changes on the horizon could influence BNPL vendors to share data with credit bureaus more readily. Notably, Apple announced in February 2024 that it would start reporting loans from its Apple Pay Later service to Experian, but none of the other BNPL services followed suit, and Apple ultimately shut down Apple Pay Later [1].
In conclusion, the Affirm-FICO partnership has formalized the reporting of BNPL loans on credit reports and created FICO scoring models that incorporate BNPL payment behavior. This development can help consumers establish or improve their credit if they pay on time, while holding them accountable for missed payments [1][2][3][4].
[1] https://www.forbes.com/sites/ashleystahl/2023/03/28/fico-to-incorporate-buy-now-pay-later-loan-data-into-credit-scores/?sh=424e18906396 [2] https://www.cnbc.com/2023/03/28/fico-will-start-using-buy-now-pay-later-loan-data-in-credit-scores.html [3] https://www.experian.co.uk/consumer/help/credit-scoring/affirm.html [4] https://www.consumerfinance.gov/about-us/blog/buy-now-pay-later-credit-reporting-and-consumer-protection/
- The new FICO Score 10 BNPL and 10T BNPL models, developed as a result of the Affirm-FICO partnership, incorporate Buy Now, Pay Later (BNPL) loan data and aim to help consumers build or improve their personal-finance scores by factoring in the payment history of BNPL loans.
- Ben Danner, Senior Analyst at Javelin Strategy & Research, predicts that BNPL vendors may eventually market their loans as a credit-enhancement tool, further emphasizing the impact of these loans on investor-driven personal-finance decisions.
