In a significant shift, FICO — the credit rating developed by Fair Isaac Corp. — is now incorporating buy now, pay later (BNPL) activity into its credit score calculations.
Starting this fall, data from hundreds of millions of BNPL loans, typically used at checkout for short-term financing, will factor into scores generated by the most widely used credit scoring model in the U.S., The Wall Street Journal reported.
This change could notably impact borrowers who frequently use BNPL services.
FICO, a global leader in analytics software, described the update as “a significant advancement in credit scoring” in a statement issued Monday.
In its announcement, FICO emphasized that the update reflects “the growing importance of BNPL loans in the U.S. credit ecosystem.”
Julie May, Vice President at FICO, noted, “Buy now, pay later loans are playing an increasingly important role in consumers’ financial lives.”
The change is expected to give mortgage lenders, loan officers, and other financial institutions a clearer picture of consumers’ financial obligations — including so-called “phantom debt,” a term used for installment loans that previously didn’t appear on credit reports.
