In a groundbreaking move that could reshape the consumer credit landscape, FICO, the global leader in credit scoring, has announced plans to incorporate buy-now-pay-later (BNPL) loan data into its credit scores.

This development, set to launch in the fall of 2025, marks the first time a major credit scoring provider will include BNPL payment history in its calculations, reflecting the growing significance of these installment plans in the financial lives of millions of Americans.

According to Axios, over 90 million Americans are expected to use BNPL services for purchases this year, highlighting the urgency for credit scoring models to adapt to this rapidly expanding form of debt. Often referred to as “phantom debt” due to its invisibility in traditional credit reports, BNPL loans have raised concerns among lenders and regulators about the incomplete picture they paint of a consumer’s financial health.

A New Era for Credit Scoring

FICO’s decision to integrate BNPL data into its scoring models, specifically through the upcoming FICO Score 10 BNPL and FICO Score 10 T BNPL suites, aims to address these gaps. The move is poised to enhance transparency for lenders, providing a clearer view of borrowers’ repayment behaviors and overall creditworthiness. This is particularly critical for industries like mortgage lending, where understanding a borrower’s full debt obligations can significantly impact approval decisions.

The inclusion of BNPL data is also seen as a step toward financial inclusion. As reported by Bloomberg, FICO’s new scores could benefit millions of consumers who rely on BNPL services to manage cash flow, potentially improving their credit profiles if they demonstrate responsible repayment habits. However, the flip side is a potential risk for those who struggle with BNPL payments, as missed installments could now directly harm their credit scores.

Impact on Lenders and Consumers

For lenders, the updated FICO scores promise a more comprehensive tool to assess risk. Mortgage brokers, loan officers, and other financial professionals will gain visibility into previously hidden debt, enabling more informed lending decisions. HousingWire notes that this change could be a game-changer in identifying over-leveraged borrowers who might otherwise slip through the cracks of traditional credit evaluations.

Consumers, meanwhile, will need to adapt to a new reality where their BNPL habits are under scrutiny. While responsible use of BNPL services could bolster credit scores, the pressure to manage these loans effectively will intensify. As PYMNTS.com points out, the incorporation of BNPL data underscores the growing overlap between short-term financing and long-term creditworthiness, urging consumers to rethink their approach to these seemingly convenient payment plans.

Looking Ahead: Challenges and Opportunities

The rollout of FICO’s BNPL-inclusive scores is not without challenges. Critics, as cited by Slashdot, argue that the integration of this data could disproportionately affect younger or lower-income consumers who rely heavily on BNPL services, potentially exacerbating financial inequality if not handled with care. FICO will need to balance accuracy with fairness to ensure the new scoring model does not unfairly penalize vulnerable populations.

Nevertheless, the initiative represents a significant evolution in credit scoring, aligning with the realities of modern consumer behavior. As BNPL continues to grow, with companies like Affirm scaling operations through substantial funding rounds as reported by Benzinga, FICO’s adaptation positions it at the forefront of financial analytics. This bold step could set a precedent for how emerging forms of credit are integrated into traditional financial systems, shaping the future of lending and borrowing for years to come.