Context:

The integration of 'buy now, pay later' (BNPL) data into FICO credit scores marks a significant shift in credit reporting, reflecting the increasing adoption of installment payments by consumers. This change will allow lenders to obtain a more comprehensive view of an individual's financial behavior, potentially impacting their creditworthiness assessments. Although the effect on credit scores might be minimal for most consumers, timely payments will still influence scores positively, while missed payments could harm them. These loans are popular among low- and middle-income groups, and while they offer convenience and flexibility, they lack the consumer protections associated with credit cards. The Consumer Financial Protection Bureau's recent stance on BNPL regulations may further complicate consumer rights and protections in this evolving financial landscape.

Dive Deeper:

• FICO's inclusion of BNPL data in credit scores will allow lenders to better assess credit risk by providing a fuller picture of a consumer's financial activities, addressing a previous blind spot in credit reporting.

• BNPL services like Affirm and Klarna, which allow consumers to split purchases into installments, are increasingly popular, especially among low- to middle-income groups, millennials, and Gen Z, but are not yet fully integrated into FICO scores.

• The potential impact on credit scores from BNPL data is relatively small, with a FICO study indicating changes within 10 points for most users, yet the effect largely depends on whether payments are made on time or not.

• Although BNPL offers a way for consumers to manage purchases without using credit cards, these loans lack the same consumer protections, such as the ability to dispute charges or receive refunds in cases of disputes with sellers.

• The Consumer Financial Protection Bureau had intended to apply credit card-like protections to BNPL services, but recent policy changes under the Trump administration have led to a reconsideration of these enforcement actions, potentially affecting consumer rights.