FICO scores will include add ‘buy now, pay later’ purchases. What it means : NPR

Buy now, pay for subsequent loans that allow buyers to divide payments into increasingly popular payments. Soon, this data will be integrated into the Fico credit scores of people.

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Justin Sullivan / Getty images

The FICO credit rating company recently announced that it would add something new to some of its credit dimensions: Buy Now data, subsequent PAINTS.

These are the loans that allow buyers, generally online, to break a purchase in payments – a way to pay that has become very popular.

Let’s take a look at what it could mean for your credit scoring.

A change to the payments division

The purchase offer now, pay later has become omnipresent during online shopping. At the checkout, it is now common to see the option of paying in several payments with a service like Affir or Klarna. A typical format allows buyers to divide the cost into four stable payments, without interest if they pay in time. Or they can divide it in addition to payments, with interest. Buyers can also use business applications to pay in physical stores.

Many Americans choose these options. In 2024, 15% of American adults had used this type of payment in the previous 12 months, according to the federal reserve.

An FICO score is used by lenders to assess your solvency and decide if you need to offer yourself a loan or credit card, and at what rate. And right now, your FICO score does not include data on the purchase now, pay for subsequent loans. But from fall, two of Fico’s rating products – over 15 years, it will offer – will incorporate this data.

Buy now, pay later “becomes a very large part of the way people manage their finances, and therefore Fico wanted to be able to manage and reflect this change,” said Julie May, Vice-President and Managing Director of Business Scores at Fico.

So who uses the purchase now, pay later? According to the Federal Reserve Federal, its greatest adoptors are low and intermediate income, blacks and Hispanics, women, millennials and members of generation Z. Those who use these payments say they are practical and allow them to distribute the cost of purchases or avoid credit cards and payments of interest. And for some, this is the only way they can afford to make their purchase.

But generally these loans are Quite small, on average $ 142 in 2022.

A blind spot for lenders

Fico says lenders wanted this type of data to give them a more complete image of people’s finances. Without that, there was something from a dead angle, explains Adam Rust, director of financial services at the Consumer Federation of America.

“In the past, when purchasing now, subsequent loans have not been reported to credit offices, which meant that credit card lenders could not see the presence of this debt when it made a decision on the quantity of credit to offer. And this has set up a possibility where a lender could offer more credit than a person can probably afford to reimburse himself.”

“We want people to get the credit they need-but we don’t want lenders to flood the credit market beyond what is safe and reasonable for consumers,” he adds.

Part of this data sharing has already started: the affirmation payment company began to share consumer loans data with the Credit Office Experian in April.

The effect on the credit scores of individuals will depend on the question of whether they make their payments in time: pay in time should help your credit. Missing payments could do so.

Fico did a one -year study with affirmation data and said that the integration of these scores had a fairly low effect – less than 10 points up or down – for more than 85% of consumers in their study. The company has not disclosed the effect on the other 15%.

For those who use the purchase now, pay for subsequent loans as the first credit foray, the change will be useful, because it will allow the company to generate a FICO score for them, explains May. “I think that for all consumers who use these products, who make payments in time, it will also be positive,” she adds.

But rust warns that this change may not make a huge difference. A recent study by the Consumer Financial Protection Bureau has revealed that people often use the purchase now, only pay only sporadically.

“If a person hopes that using a single purchase now, pay a later loan will have a dramatic effect on their credit, it is likely that this will not be the case,” said Rust. “It will always be as impactful as its overall use.”

And, of course, there is the risk of harming your score. Almost a quarter of people using these loans made a late payment last year, according to the federal reserve.

“As with credit cards, as with your mortgage or car loan, by making payments in time, being responsible for the credit uses which has been granted to you, including the amount of the credit you ask – these are the things that make up the calculation of the FICO score,” said May. “And that will continue with the introduction of Buy now, pay for subsequent loans” in this score.

Buying now, paying later has the same protections as credit cards

Rust also warns that even if people use these loans as they use credit cards, they do not offer the same protections, especially with regard to disputes.

For example, consumers have had problems when they cancel an order but cannot be reimbursed by the seller – but they are still On the hook for payments to these third -party companies.

“These types of problems are solved with the regulations surrounding credit cards,” said Rust. “In some respects, credit cards have stronger protections than almost all other forms of credit.”

The Consumer Financial Protection Bureau published a rule last year which mainly dealt with the purchase now, pay the subsequent lenders in the same way as credit card providers, offering consumers more protections, including the right to challenge the costs.

But in May, under the Trump administration, the CFPB said it was withdrawn from the application of this rule and would consider canceling it.