FICO to Launch Credit Scores That Incorporate BNPL Data

FICO will launch its first credit scores that incorporate buy now, pay later (BNPL) data in the fall.

FICO Score 10 BNPL and FICO Score 10 T BNPL will initially be offered alongside existing versions of the FICO Score, with no additional fee from FICO, so lenders can evaluate them while continuing to use the existing FICO models, the company said in a Monday (June 23) press release.

The new scores are meant to account for the growing importance of BNPL loans in the United States credit ecosystem, provide lenders with greater visibility into consumers’ repayment behavior and enhance financial inclusion, according to the release.

“By expanding our FICO Score 10 Suite with new models designed to incorporate BNPL data, we’re enabling lenders to more accurately evaluate credit readiness, especially for consumers whose first credit experience is through BNPL products,” Julie May, vice president and general manager of B2B scores at FICO, said in the release. “This innovation also supports our mission to expand financial inclusion by helping more consumers gain access to credit.”

FICO said in February that it planned to add BNPL data to its credit score analysis after conducting a joint study with BNPL company Affirm.

The study compared the FICO scores of over 500,000 consumers who opened at least one new Affirm BNPL loan against a benchmark population of consumers without an Affirm BNPL loan. It found that the impacts on FICO Score predictiveness ranged “from modest improvement to no adverse impact, across a range of different use cases.”

“Our findings show that the inclusion of BNPL data via our innovative treatment can drive score increases for some consumers, while improving model risk performance for lenders,” Ethan Dornhelm, vice president of scores and predictive analytics at FICO, said at the time in a press release.

Affirm announced in March that it planned to begin furnishing information about all its payment plans to Experian on April 1. Affirm said the new loan reporting would not be factored into consumers’ traditional credit scores in the near term, but it may in the future as new credit scoring models are developed.

The BNPL provider added that Experian was the first credit reporting agency to establish this partnership with Affirm and that Affirm may furnish information about all loan products to other credit reporting agencies in the future.

“Having all loans reflected in a consumer’s financial profile will help protect and empower borrowers,” Affirm President Libor Michalek said at the time in a press release.

In April, Affirm said it would begin reporting all its pay-over-time loans to TransUnion, beginning with those issued May 1. Affirm added that while consumers would see details about all Affirm transactions on their TransUnion credit file, the transactions would not be visible to lenders and would not be factored into traditional credit scores.

The PYMNTS Intelligence eBook “10 Impact Statements: The 2024 Pay Later Report” found that BNPL plans often serve as a financial lifeline for individuals living paycheck to paycheck and struggling to pay bills. It also found that 76% of BNPL users report high levels of satisfaction with these plans.