BNPL is Watching You How "Buy Now, Pay Later" Could Crush Your Credit Score

Article Heading: Buy Now, Pay Later Purchases Can Now Affect Your Credit Score: Here's What That Means

The financial landscape is constantly evolving, and one of the most significant recent shifts is the rise of "buy now, pay later" (BNPL) services. These installment loan options, popularized by companies like Affirm and Klarna, have become a ubiquitous part of the online shopping experience. Now, in a move that could impact millions of consumers, FICO has announced it will begin incorporating BNPL data into some of its credit scores.

What does this mean for you? Let's delve into the details.

The Growing Popularity of BNPL

BNPL's appeal lies in its convenience and accessibility. Shoppers can break down purchases into smaller, more manageable installments, often with no interest if payments are made on time. This has made it a particularly attractive option for:

• Low- and middle-income individuals
• Black and Hispanic communities
• Women
• Millennials and Gen Z

According to the Federal Reserve, 15% of American adults used BNPL services in the past year. The average BNPL loan in 2022 was around $142, highlighting its use for smaller, everyday purchases.

FICO's Decision and Its Implications

Historically, BNPL loans have not been factored into FICO scores, creating a blind spot for lenders. Julie May, vice president and general manager of business-to-business scores at FICO, explains that the company wants to "manage and reflect that shift" as BNPL becomes a more integral part of personal finance.

Starting this fall, two of FICO's scoring products will incorporate BNPL data. This means:

• Positive impact: On-time payments on BNPL loans can now contribute positively to your credit score.
• Negative impact: Missed payments could negatively affect your credit score.
• Increased credit access: For those new to credit, responsible BNPL use can help establish a FICO score.

FICO's internal study, using data from Affirm, suggests that the impact will be relatively small for most consumers, with over 85% experiencing a change of 10 points or less. However, the effect on the remaining 15% remains undisclosed.

A Word of Caution

While the inclusion of BNPL in credit scores can be beneficial, it's crucial to approach these services responsibly. Adam Rust, director of financial services at the Consumer Federation of America, cautions that relying solely on BNPL to significantly improve your credit score is unlikely to yield dramatic results. He also warns that almost a quarter of BNPL users made a late payment last year, underscoring the risk of negatively impacting your credit.

BNPL vs. Credit Cards: Important Differences

Despite their similarities, BNPL services and credit cards offer different levels of consumer protection. Rust highlights that credit cards typically have stronger dispute resolution mechanisms. For example, consumers have sometimes struggled to obtain refunds for canceled orders while still being obligated to repay the BNPL lender.

While the Consumer Financial Protection Bureau (CFPB) attempted to extend credit card-like protections to BNPL lenders, the agency has since pulled back from enforcing those rules.

Key Takeaways for Consumers

• Responsible Use is Key: As with any form of credit, making on-time payments is crucial.
• Understand the Terms: Be aware of interest rates, late fees, and dispute resolution processes.
• Don't Overextend Yourself: Only use BNPL for purchases you can comfortably afford.
• Be Aware of Limitations: BNPL may not offer the same consumer protections as credit cards.

The integration of BNPL data into credit scores represents a significant step towards a more comprehensive assessment of consumer creditworthiness. While this change offers opportunities for individuals to build or improve their credit, it also underscores the importance of responsible financial management. By understanding the potential benefits and risks of BNPL, consumers can make informed decisions that support their long-term financial health.

Tags: Buy now pay later, BNPL, Credit score, FICO, Installment loans, Affirm, Klarna, Online shopping, Payment options, Credit impact

Source: https://www.npr.org/2025/07/05/nx-s1-5448793/credit-score-fico-buy-now-pay-later-affirm-klarna