New York – Credit scores are set to incorporate "buy now, pay later" (BNPL) loan data this fall, a move heralded by FICO as a significant advancement, but the integration may encounter a "speed bump" in its broader adoption. The Wall Street Journal highlighted this potential challenge, suggesting a less immediate impact than anticipated.
Fair Isaac Corp. (FICO), the developer of the widely used FICO Score, announced in June the launch of FICO Score 10 BNPL and FICO Score 10 T BNPL. These new models are designed to include BNPL repayment histories, aiming to provide lenders with a more comprehensive view of consumer creditworthiness and enhance financial inclusion, particularly for those new to credit. Julie May, Vice President and General Manager of B2B Scores at FICO, stated that these models would enable lenders to "more accurately evaluate credit readiness."
However, the full integration faces hurdles. A primary challenge lies in the inconsistent reporting of BNPL data by providers to credit bureaus. While some major players like Affirm have begun reporting certain loans to Experian, not all BNPL companies currently share this information, creating potential blind spots for lenders. This lack of universal data reporting could limit the effectiveness of FICO's new scores.
Furthermore, the adoption rate among lenders is expected to be gradual. Many financial institutions still rely on older FICO scoring models, such as FICO 8, and transitioning to newer versions requires significant investment in technology and staff training. Ted Rossman, a credit card expert at Bankrate, suggested that the rollout might be "slower than one might think at first glance," indicating that it will take time for the new BNPL-inclusive scores to become widely utilized across the lending industry.
Despite these potential "speed bumps," the move to incorporate BNPL data is generally seen as a positive step towards modernizing credit scoring. For consumers who manage their BNPL payments responsibly, the inclusion of this data could potentially help build or improve their credit scores, fostering greater financial access. Conversely, missed or late payments on BNPL loans will now carry direct consequences for credit scores, emphasizing the importance of diligent repayment.