After a year of research, FICO is introducing two new credit score models that incorporate buy now, pay later data in their calculations.
FICO Score 10 BNPL and FICO Score 10 T BNPL will be available alongside the existing versions of the FICO Score at no additional cost, giving lenders the ability to evaluate the impact of BNPL data within their current evaluation processes.
Impacts of BNPL Loans
FICO’s year-long joint study of BNPL data confirmed that consumers frequently open a large number of these loans within a short period. As a result, FICO aggregated separate BNPL loans when calculating certain in-model variables.
However, the presence of these loans had less impact than some might expect. In examining BNPL loans taken out through Affirm, FICO found that new BNPL loans affected credit scores by approximately 10 points for more than 85% of the customers surveyed.
Furthermore, that movement was more likely to be positive than negative. Most consumers who had recently taken out five or more Affirm loans either saw their scores increase or experienced no change.
Casting a Wide Net
In developing the new models, FICO also consulted with some of the largest lenders in the U.S. Across this group, there was broad consensus that integrating BNPL data into credit scoring would allow lenders to make more informed and accurate decisions.
“FICO Scores continue to be the top predictor in credit quality, and issuers use the score from stem to stern in the credit process,” said Brian Riley, Director of Credit at Javelin Strategy & Research. “That means issuers take advantage of the FICO scoring process at the acquisition point, through the credit management cycle, and even when they securitize their portfolios in Asset-Backed Securitizations.”
These changes have been in motion for some time. In June 2022, the Consumer Financial Protection Bureau requested that consumer reporting companies incorporate BNPL data into core credit files. The only major BNPL provider to begin reporting its loan data was Affirm, which ultimately partnered with FICO on the new scoring models.
“FICO leads the scoring function in the U.S. and many other markets,” said Riley. “Their integration of BNPL certainly adds a solid perspective, just as the latest version of FICO 10-T. BNPL is here to stay, and this dimension will ensure that the product has the visibility consumers and lenders want.”
