BNPL projected to affect credit scores by 10 points

As buy now, pay later use rises and that debt begins to be reported to credit agencies, the impact is expected to be minimal as BNPL activity largely mirrors consumers’ existing credit habits. Consumers are originating more buy now, pay later (BNPL) loans as costs rise. Around 21.2% of consumers with a credit record financed a purchase with a BNPL loan in 2022, up from 17.6% in 2021, according to a Consumer Financial Protection Bureau report published in January that reflects the most recent BNPL data available from the bureau. More than 20% of consumers used BNPL in 2022. Reporting BNPL purchases, though, remains new. BNPL provider Affirm began reporting its issued loans to credit agency Experian on April 1 and to TransUnion on May 1. FICO ’s newest credit scores, which are to be released this year , will also incorporate BNPL data into scoring. As a result, lenders have concerns about whether these loans are allowing consumers to take on debts that are hidden from traditional credit reporting. For Jacksonville, Fla.-based VyStar Credit Union , BNPL lines are not generally visible, Dennis James , senior vice president of consumer lending at VyStar, told Auto Finance News . While James heard anecdotally that BNPL borrowers are showing increased defaults overall, VyStar is waiting for traditional bureaus to gauge their impact, he said. However, BNPL wouldn’t drastically affect credit scores in most instances, according to a FICO study published Feb. 4. Of 500,000 consumers with BNPL loans, around 85% are expected to see about a 10-point shift after BNPL is factored into FICO scores, according to the study. This means BNPL loans will not radically shift consumers’ credit profiles, Ethan Dornhelm , FICO vice president of scores and predictive analytics, told AFN . “For the majority of consumers, their behaviors on their buy now, pay later loans are largely consistent and reflective of their behaviors on other credit products,” — Ethan Dornhelm, FICO Of 2022 BNPL borrowers, according to the CFPB study: Around 63% opened multiple simultaneous loans during the year; Around 33% took out loans from multiple BNPL lenders; Around 28% of the loans were for borrowers ages 18 to 24; Nearly two-thirds of BNPL loans went to borrowers with subprime or deep subprime credit scores; and Borrowers were more likely to hold higher average balances on other unsecured debt. While BNPL customers are more likely to be younger and have lower credit scores, consistent BNPL payments can raise customers’ scores in some instances, FICO’s Dornhelm said. “There is no one-size-fits-all description of a buy now, pay later user,” — Ethan Dornhelm, FICO “There is no one-size-fits-all description of a buy now, pay later user,” he said. “They do tend to have existing blemishes in their credit history. … The FICO score provides the opportunity for them to demonstrate responsible on-time behaviors.” Credit builders, invisible debt Until lenders see BNPL and other nontraditional loans consistently appear on credit reporting, they may view customers who hold them as riskier. Fargo, N.D. based Corwin Chrysler Dodge Jeep Ram’s lender partners sometimes decide consumers are riskier if they find alternative data reflecting the use of BNPL or credit builder loans, Finance Manager Britany Williams told AFN . In one instance, a Corwin lender ranked a customer 100 points lower internally than their reported FICO score because of a credit-builder loan from Chime . “On our end, it was showing a 549 [FICO], but because they were using Chime to rebuild their credit, the bank was pulling it as a 449,” she said. While credit-builder loans — loans that help consumers improve credit history — differ from BNPL, both may not fully appear in traditional credit reporting. The lender told Williams that credit-builder services can hide information from lenders, making the customer riskier, she said. Credit-builder loans make up less than 1% of loans to scorable customers across all industries, FICO VP and Head of Scores for Auto Shams Blanc said at the Non-Prime Auto Financing Conference 2025 in June. For VyStar, partnering with AI-powered lending fintech Zest AI to build more robust credit scoring models in addition to FICO and credit bureau data helps the credit union evaluate risk, VyStar’s James said. Combining AI models with traditional bureau data and lenders’ own internal data could help lenders better manage BNPL risk, he said. “Long term — whether that’s 24 months or 3 to 5 years — all those will blend into a new score,” he said. “The more AI we have around that at high level and larger volumes, lenders are going to be more comfortable with buy now, pay later trade lines.” Register here for “Digital strategies for exceptional customer experience,” a free Auto Finance News webinar set for Tuesday, July 15, at 11 a.m. ET.

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