Fact Check: "FICO's new model could increase credit scores for BNPL users with timely payments."
What We Know
FICO, the credit scoring company, announced that it will begin incorporating Buy Now, Pay Later (BNPL) loans into its credit scoring models, specifically the FICO Score 10 BNPL and FICO Score 10 T BNPL, starting in the fall of 2025. This change is significant as it allows lenders to evaluate the repayment behaviors of consumers using BNPL loans, which were previously excluded from credit reports (AP News, Axios).
FICO's decision comes in response to the growing prevalence of BNPL loans, which accounted for over $116 billion in purchases in 2023, a dramatic increase from just $2 billion in 2019 (New York Times). The new model aims to provide a more comprehensive view of a consumer's credit readiness, particularly for those who may not have traditional credit histories (FICO).
According to a joint study by FICO and Affirm, consumers who manage multiple BNPL loans responsibly—specifically those with five or more loans—tend to see their credit scores either increase or remain stable (AP News). This suggests that timely payments on BNPL loans could indeed contribute positively to a consumer's credit score.
Analysis
The claim that FICO's new model could increase credit scores for BNPL users with timely payments is partially true. The evidence indicates that the new scoring model is designed to reward responsible repayment behavior associated with BNPL loans. Julie May, a vice president at FICO, stated that the model aims to help consumers establish a credit history and improve their credit scores when they make timely payments (New York Times, Axios).
However, there are caveats to this optimism. Not all BNPL companies report their data to credit bureaus, and not all lenders will adopt the new scoring models immediately (AP News). Adam Rust from the Consumer Federation of America expressed skepticism about the immediate impact of these changes, suggesting that while the new model may provide a more accurate picture of a consumer's debts, it might not significantly alter existing credit profiles for most users (AP News).
Furthermore, there are concerns regarding the potential negative effects on credit-restrained individuals. Experts warn that integrating BNPL data into credit scores could have unintended consequences, especially for vulnerable populations who may already be struggling with debt (AP News).
In summary, while the new FICO model has the potential to increase credit scores for BNPL users who make timely payments, the actual impact will depend on several factors, including the willingness of BNPL providers to share data and the adoption of the new scoring model by lenders.
Conclusion
Verdict: Partially True. The claim holds some truth as FICO's new model is designed to potentially increase credit scores for BNPL users who make timely payments. However, the effectiveness of this model will depend on broader adoption and the reporting practices of BNPL companies. Additionally, there are concerns about the implications for consumers who are already credit-restrained, which complicates the overall picture.
Sources
- Buy Now, Pay Later loans will soon affect some credit scores
- FICO to Include 'Buy Now, Pay Later' Loan History in Credit ...
- FICO Unveils Groundbreaking Credit Scores That Incorporate Buy Now, Pay ...
- FICO credit scores to include buy-now-pay-later loans
- Buy Now, Pay Later loans will factor in to Americans' credit scores ...
