NEWS: FICO Credit Scores Get An Upgrade!

Summary

FICO has introduced two new credit scoring models, FICO Score 10 BNPL and FICO Score 10T, that incorporate Buy Now Pay Later (BNPL) loans into credit scores. These models will allow users who pay off BNPL loans on time to see positive impacts on their credit scores. However, the effectiveness of these changes depends on which BNPL providers report data to credit bureaus and whether lenders adopt the new scoring models. Set to launch in the fall of 2025, these updates offer a promising shift in how BNPL usage is viewed in credit scoring.

Takeaways

• 😀 FICO has introduced two new credit scoring models: FICO Score 10 BNPL and FICO Score 10T BNPL, incorporating Buy Now Pay Later (BNPL) loans.
• 😀 FICO Score 10T is based on 'trending' data, allowing lenders to assess credit behavior over time, rather than relying solely on a snapshot at one point in time.
• 😀 Whether BNPL loans affect your credit score depends on your usage, the BNPL providers you choose, and if those providers report to credit bureaus.
• 😀 Some BNPL providers, like Affirm, now report loans to credit bureaus (TransUnion and Experian), while others, like PayPal and Klarna, do not unless explicitly requested.
• 😀 FICO's new BNPL scoring models are not mandatory; lenders have the choice to use whichever model they prefer.
• 😀 The introduction of new models doesn’t necessarily mean lenders will adopt them if they’re satisfied with their current scoring methods.
• 😀 FICO's BNPL models may aggregate multiple loans into a single entity, making it easier to assess a user’s BNPL activity.
• 😀 BNPL loans are generally for smaller amounts, and multiple BNPL loans may make users appear as if they are constantly taking out installment loans, potentially impacting their credit score.
• 😀 Many BNPL companies have hesitated to report to credit bureaus because of uncertainty about how these loans would be factored into credit scores, especially for users who repay on time.
• 😀 The new FICO BNPL models will be available to lenders in the fall of 2025, but they will initially receive the new models for free alongside other scores to evaluate their impact.
• 😀 For BNPL users who consistently pay off their loans, the inclusion of positive BNPL data in credit scores is likely a beneficial development, as it may improve their credit score.

Q & A

What is the main purpose of FICO's new BNPL credit scores?

The main purpose of FICO's new BNPL credit scores is to incorporate Buy Now, Pay Later (BNPL) loans into credit scoring models, which will help lenders better assess consumers who use BNPL services.

What are the two new FICO credit scoring models introduced?

The two new FICO credit scoring models are FICO Score 10 BNPL and FICO Score 10T BNPL. The 'T' in 10T stands for 'trending,' which takes into account ongoing credit behavior instead of just a snapshot at a specific point in time.

How does the 'T' in FICO Score 10T differ from the standard FICO Score 10?

The 'T' in FICO Score 10T stands for 'trending' and considers a consumer's credit behavior over time, while the standard FICO Score 10 looks at a single point in time.

Do all BNPL companies report to credit bureaus?

No, not all BNPL companies report to credit bureaus. For instance, Affirm reports its loans to TransUnion and Experian, but others like CLA and PayPal do not report unless requested by the consumer.

What might impact whether BNPL loans are included in someone's credit score?

Whether BNPL loans are included in someone's credit score depends on whether the BNPL provider reports the loans to credit bureaus and whether the lender adopts FICO's new BNPL credit scoring models.

How could the introduction of BNPL data in credit scores benefit consumers?

The inclusion of BNPL data in credit scores could benefit consumers who make timely payments on BNPL loans, as it would allow positive payment behavior to contribute to their credit score, unlike the current system where only negative data is reported.

Why have some BNPL companies been hesitant to report to credit bureaus?

Some BNPL companies have been hesitant to report to credit bureaus due to uncertainty about how the credit scoring models would incorporate BNPL loans, and the potential for harming consumers' credit scores, especially if the loans are frequent or small.

When will the new FICO BNPL credit scores be available?

The new FICO BNPL credit scores will be available in the fall of 2025.

Will the new FICO BNPL models automatically replace older scoring models?

No, the new FICO BNPL models will not automatically replace older models. Lenders have the choice to use whichever scoring model they prefer, and they might continue using the older models if they are satisfied with their results.

How will lenders be able to compare the new BNPL models to older ones?

Lenders will receive the new FICO BNPL scores for free alongside the older credit scores they are already purchasing, allowing them to compare the differences and determine whether the new models are more useful.