Imminent changes to the credit scoring system in the U.S. could see millions of scores decline in the coming months.
Earlier this year, scoring giant FICO announced that it would be incorporating “buy now, pay later” (BNPL) loan data into its calculations beginning this fall, a move it said reflected “the growing importance of BNPL loans in the U.S. credit ecosystem.”
Newsweek has contacted FICO via email outside business hours for further comment on the change.
Why It Matters
Some 81.5 million Americans used BNPL loans in 2024, according to an estimate from Capital One Shopping. This is expected to grow to as many as 91.5 million this year. Intended to offer consumers the chance to spread out costs with little or no interest, BNPL can make purchases—especially pricey ones—easier to manage. Given that it has softer checks than those for traditional loans, BNPL can also provide a more accessible line of credit.
However, experts have warned that without careful management, BNPL can shift from a financial convenience to a potential debt trap. While the upcoming changes may allow the disciplined to build their credit history and boost credit scores, they could also spell difficulty for the significant share of users who already struggle with late payments. Additionally, research suggests that many BNPL users remain unaware of the change or how it may affect them.
What To Know
According to a representative survey of over 2,000 adults by the legal service provider LegalShield, 76 percent of Americans rely on BNPL services, and 49 percent have missed payments in the past.
Its adoption has extended beyond elective purchases and is increasingly becoming a financial necessity, with 47 percent reporting using BNPL for groceries and 35 percent for medical bills.
Additionally, two-thirds of users have juggled more than one BNPL loan at a time, and the majority of those (62 percent) have had more than five loans open simultaneously.
A separate survey from lending marketplace LendingTree similarly found that 41 percent of BNPL users had reported making a late payment within the past 12 months in August, up from 34 percent last year. Meanwhile, 60 percent of users said they managed multiple loans at once, which rose to 71 percent among Gen Z users.
For those consumers with multiple BNPL loans, the upcoming FICO changes could “have a substantial effect on their credit scores,” said Rebecca Carter, a LegalShield provider attorney and principal at Friedman, Framme & Thrush P.A.
“Historically, BNPL arrangements were not factored into credit scoring and therefore could not negatively impact a consumer’s score,” Carter told Newsweek. “That will soon change.”
The incorporation of BNPL loan data into credit scores also raises concerns given that 62 percent of respondents reported billing errors in the past, and 45 percent said they had faced legal or contractual disputes over their loans. Additionally, LegalShield found that almost four in 10 Americans (38 percent) remained unaware that FICO would soon factor BNPL data into its scoring model.
“It is not surprising that such a large percentage of consumers remain unaware of the upcoming FICO changes,” Carter told Newsweek. “Many individuals who rely on BNPL options are already in financially vulnerable situations and focused on meeting immediate needs.”
“Long-term considerations, such as the effect on credit scores, often do not receive the same level of attention in the moment,” she added.
What People Are Saying
Julie May, the vice president and general manager of B2B Scores at FICO, said in June: “Buy Now, Pay Later loans are playing an increasingly important role in consumers’ financial lives. By expanding our FICO Score 10 Suite with new models designed to incorporate BNPL data, we’re enabling lenders to more accurately evaluate credit readiness, especially for consumers whose first credit experience is through BNPL products. This innovation also supports our mission to expand financial inclusion by helping more consumers gain access to credit.”
Aditi Routh, an economist at the Federal Reserve Bank of Kansas City, told Newsweek: “BNPL users repaying late could be a sign of overspending, overextension of debt, or deterioration of their financial situation. And the increase in the share of BNPL users paying late could be the sign and it should be closely monitored by researchers, policymakers, and consumer advocacy groups.”
She added: “BNPL offers benefits relative to other credit products that charge higher interest rates, such as credit cards, payday loans, car title loans. So if consumers use BNPL service as a substitute for alternative credit services or credit cards, they can reduce or avoid high costs or interest charges, making them better-off.”
Attorney Rebecca Carter told Newsweek: “The greatest legal risk with BNPL arrangements stems from consumers not fully understanding the contractual terms. Many plans include added costs or interest if balances are not paid within a specified period. Beyond that, consumers often underestimate their broader cost-of-living expenses, which can lead to financial strain. As a result, they may increasingly rely on BNPL for everyday necessities. Because these are typically smaller loans with modest monthly payments, it is easy for consumers to dismiss them as ‘affordable’ without considering the cumulative impact of multiple obligations.”
What Happens Next
FICO has not specified an exact date for the rollout of its updated credit scoring system, indicating only that it is expected to launch in the fall.
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