FICO Announces Plan to Add BNPL to Credit Score Calculations

Following a joint study with buy now, pay later (BNPL) firm Affirm, FICO has said that it is planning to add BNPL data to its credit score analysis.

The analytics firm said in a Tuesday (Feb. 4) news release that over the course of a year, it had studied how BNPL usage — if incorporated into its FICO scoring system through a simulation — could raise FICO scores for some new BNPL borrowers.

“Given the growing popularity of BNPL loans, understanding how to effectively capture the benefit that BNPL data can have on FICO Scores is crucial to all stakeholders in the credit ecosystem,” said Ethan Dornhelm, vice president of scores and predictive analytics at FICO, said in the news release.

“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.”

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, according to the release. FICO simulated the inclusion of these loans into consumers’ credit reports, then studied the potential impact to their credit scores.

The study found that for the over 85% of consumers who had opened a new BNPL account, there was generally a consistent impact on their FICO scores. It also found that impacts on FICO Score predictiveness ranged “from modest improvement to no adverse impact, across a range of different use cases.”

“Based on learnings from this industry-leading analysis, FICO is developing a solution to introduce its proprietary treatment of BNPL data to the credit-scoring marketplace,” the company said in the release. “FICO will be releasing more information on this exciting product development soon.”

The news comes as more consumers are opting for installment payments over using their credit cards.

Over 56% of consumers said they used BNPL options last year, PYMNTS Intelligence found, with 76% of these users reporting high levels of satisfaction. In addition, BNPL offers paycheck-to-paycheck consumers a financial lifeline; these consumers are four times more likely to turn to BNPL than their non-paycheck-to-paycheck counterparts.