Buy Now, Pay Later (BNPL) loans have risen sharply, with 20% of U.S. consumers utilizing them last year. However, BNPL loans do not contribute to credit scores, potentially harming consumers with good financial habits. Recent research from FICO and Affirm reveals that including BNPL loan data in credit scoring could positively affect about two-thirds of users. The study tracked 500,000 individuals and found that most experienced score increases or stability, especially those managing multiple BNPL loans responsibly, thereby suggesting benefits for both consumers and lenders.
"Affirm gave us data that would be the same data they would furnish to a credit bureau," says Julie May, vice president and general manager of B2B scores at FICO.
"With the simulated study, we would see positive benefits for approximately two-thirds of consumers, particularly for those with utilization of five or more BNPL loans," she says.
The analysis found that using the BNPL data to generate a FICO score was "generally consistent with the opening of a new account," with a slight change in their score for 85%.
Incorporating BNPL loan data into credit scoring models would benefit consumers and the lenders who use the FICO score to make lending decisions."
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