How consumers use “buy now, pay later” loans will be incorporated into one of the key metrics used to determine credit worthiness.
FICO, the company whose credit scores are used by 90 percent of U.S. lenders, said it would start including a person’s “buy now, pay later” payment history in its all-important credit score. Currently these increasingly popular installment loans do not show up on credit reports, leaving banks with an incomplete picture of how much debt people actually have, along with their ability to pay it off.
FICO, in a news release, said the growth of these loans led to its decision. Americans purchased more than $116.23 billion in goods and services using pay-later loans in 2023, up from $2 billion in 2019, according to Capital One Shopping Research. These loans have taken off because they offer a quick way to split purchases into smaller payments for consumers.
Two of FICO’s popular scoring models will begin integrating a consumer’s history with these loans to give other lenders “greater visibility into consumers’ repayment behaviors” and a “more comprehensive view of their credit readiness,” starting this fall.
Though once reserved for big ticket items such as televisions, these installment plans are now being used by more people to pay for essential things like groceries and household utilities. And since an individual can take out multiple loans through a single financing later company, FICO determined a way to aggregate those loans for inclusion in its scoring models.
In some cases, a person’s FICO score could rise, the company said.
Julie May, vice president and general manager of business-to-business scores at FICO, said the move would help shoppers using pay-later programs to establish a credit history.
Interest from lenders has been strong since the company released data in partnership with Affirm, a major pay-later loan provider, in February, said Mrs. May.
“Lenders have told us loud and clear they would like the FICO score to include” data, on pay-later loans, said Mrs. May. She said that “there can be a real benefit to being able to assess credit readiness,” adding, “particularly for those populations who may not use other types of credit products.”
Lower-income households — those earning less than $50,000 a year — are also the biggest users of pay-later programs, according to the annual survey of U.S. households released last month by the Federal Reserve.
The move could be a positive for consumers and lenders, said Ted Rossman, a senior industry analyst for Bankrate. If you use the programs responsibly, “it should help your credit score,” he said. “If you pay late or rack up too much debt, it’s fair that this could hurt your credit score, similar to credit cards and other loans.”
Still, FICO scores won’t be affected immediately, Mr. Rossman cautioned. It’s unclear whether buy now, pay later companies like Klarna and Affirm will send information to all credit bureaus and whether all lenders will use FICO’s newest scoring models.
“Change comes slowly in the credit scoring world,” he said. “We’ll see gradual progress in the coming months, but this rollout will probably be measured in years, ultimately.”
Kailyn Rhone is a Times business reporter and the 2025 David Carr fellow.
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