By: Russ Spencer

In a significant move set to reshape the contours of American consumer finance, FICO — the data analytics firm whose credit scores underpin 90 percent of U.S. lending decisions — announced it will begin factoring “buy now, pay later” (BNPL) loan data into two of its most widely used credit scoring models. As reported by The New York Times on Tuesday, this marks the first time these popular but previously opaque installment loans will play a formal role in determining individual creditworthiness.

The change, scheduled for implementation this fall, comes amid explosive growth in BNPL usage. According to Capital One Shopping Research, Americans spent over $116 billion through BNPL platforms in 2023, a staggering increase from just $2 billion in 2019. The proliferation of such loans, often for essential goods like groceries and utilities — not just electronics or apparel — has compelled FICO to adapt its methodology to reflect evolving consumer behavior.

FICO’s announcement was made in response to increasing demand from lenders for greater transparency into consumer debt obligations, The New York Times reported. Until now, most BNPL loans — typically issued by companies such as Affirm, Klarna, and Afterpay — did not appear on credit reports. This allowed consumers to accumulate multiple installment debts without traditional financial institutions having visibility into their repayment habits or total liabilities.

Julie May, FICO’s vice president and general manager for B2B scores, emphasized the data gap this created. “Lenders have told us loud and clear they would like the FICO score to include data on pay-later loans,” she told The New York Times. “There can be a real benefit to being able to assess credit readiness, particularly for those populations who may not use other types of credit products.”

Indeed, May highlighted that BNPL usage has surged among underserved demographics, particularly lower-income households earning under $50,000 annually. This is corroborated by the Federal Reserve’s recent survey of U.S. households, which found a disproportionate reliance on BNPL services among those financially vulnerable populations.

The move could offer a double-edged sword for millions of users. For those who responsibly manage their BNPL obligations, the inclusion could enhance their credit profiles. Timely payments on such loans may improve FICO scores by helping establish a documented history of repayment — especially for younger borrowers or those with thin credit files.

However, as The New York Times and consumer advocates have warned, this development also brings increased risk for those who misuse or overextend themselves through these platforms. Ted Rossman, a senior industry analyst at Bankrate, noted that BNPL loans can now “help your credit score if used responsibly,” but cautioned that delinquencies and overuse “could hurt your credit score, similar to credit cards and other loans.”

This warning is particularly urgent for consumers who have treated BNPL as a convenient or consequence-free alternative to traditional credit. Those who fail to repay on time may soon see their scores suffer, potentially affecting future loan eligibility, mortgage rates, and more.

Despite the sweeping nature of FICO’s policy shift, The New York Times report noted that its impact will not be felt uniformly — or immediately. It remains uncertain which BNPL providers will report repayment data to the major credit bureaus and whether lenders will adopt FICO’s new scoring models promptly. Historically, the rollout of updated credit scoring models has been a slow process, often hindered by inconsistent data availability and lender inertia.

“Change comes slowly in the credit scoring world,” Rossman told The New York Times. “We’ll see gradual progress in the coming months, but this rollout will probably be measured in years, ultimately.”

Another complicating factor is the fragmented nature of the BNPL industry itself. While Affirm, for instance, partnered with FICO earlier this year to explore data-sharing possibilities, other players may be reluctant to expose their customer bases to negative credit consequences, especially when their marketing is built on a perception of accessibility and ease.

This pivot by FICO underscores a broader transformation in how creditworthiness is assessed in the 21st century. As The New York Times observed in its coverage, the growth of BNPL marks a fundamental change in consumer credit behavior — one that regulators, lenders, and scoring agencies are only now beginning to reckon with.

For FICO, incorporating BNPL into its models is not merely a technical adjustment; it is a recognition that consumer borrowing has outpaced the infrastructure used to measure risk. By embracing these newer credit instruments, the firm aims to provide what it describes as “a more comprehensive view of [a consumer’s] credit readiness.”

But for consumers, the message is clear: the era of BNPL operating in the financial shadows is coming to an end. Those who use these services must now treat them with the same seriousness and discipline as a credit card or personal loan.

As the financial industry catches up with modern consumer habits, this latest move by FICO may usher in greater accountability and improved access to credit — but only for those who manage their debts prudently.

A word of caution to consumers: If you are currently using buy now, pay later services and are unable to repay on time, you may soon find your credit score adversely affected. What was once a seemingly benign convenience could now carry long-term consequences for your financial health.

In short, the invisible loan is becoming very visible — to banks, to credit bureaus, and most critically, to your future lenders.