Impact of Buy Now, Pay Later Loans on US Credit Scores Explained

In a significant development for American consumers, the credit scoring company FICO announced on June 23, 2025, that it will now include 'Buy Now, Pay Later' (BNPL) loans in credit reports. This change aims to provide lenders with a more comprehensive view of borrowers' financial behaviors, particularly as BNPL services have gained immense popularity over the last few years. The inclusion of BNPL data will allow for a more accurate evaluation of credit readiness, thereby potentially influencing consumers' access to credit.

This shift comes at a time when BNPL services, offered by companies such as Affirm, Afterpay, and Klarna, have surged in usage. According to the Consumer Financial Protection Bureau (CFPB), BNPL loans increased from $2.6 billion in 2019 to an estimated $24 billion in 2021. This rapid expansion is attributed to changing consumer habits, particularly during the COVID-19 pandemic, which saw a significant shift towards online shopping and alternative payment methods.

The current landscape reveals that while BNPL loans can serve as a financial tool for many, they also carry risks. Nicole Nitta, a 31-year-old resident of Las Vegas, expressed concerns about the impact on her spending power due to her existing credit challenges. "I have a feeling that I’m just not going to have as much access to spending power and zero or really low APR rates," she stated. However, financial experts suggest that responsible use of BNPL loans could enhance credit profiles. Ted Rossman, a senior industry analyst at Bankrate, noted, "If you're using Buy Now, Pay Later responsibly, I would argue the change should help you as a steppingstone to improve your credit."

Fumiko Hayashi, vice president at the Federal Reserve Bank of Kansas City, highlighted that the move to include BNPL loans in credit scoring is reflective of broader economic trends, including the shift towards online purchasing. With BNPL loans typically allowing consumers to split purchases into interest-free installments, many young consumers, particularly those under 33, have embraced this payment method. A report by the CFPB indicated that 70% of BNPL users fall within this age group.

However, this new credit scoring model raises concerns, particularly for individuals with subprime credit scores. Data from the CFPB shows that over 60% of new BNPL loans from 2021 to 2022 were obtained by borrowers with low credit ratings. Furthermore, the Federal Reserve reported that 24% of BNPL borrowers were late on payments in 2024, a marked increase from the previous year. "If they keep using BNPL only and they don’t use a credit card at all, they cannot build credit history," Hayashi remarked, emphasizing the importance of a diversified credit portfolio.

Despite the potential benefits for some, critics warn that the growing reliance on BNPL could encourage poor spending habits among younger consumers. Becca, a 26-year-old tech worker in New York, shared her experience of using BNPL for luxury items, expressing concern about the habit-forming nature of the payment method. "It’s just encouraging poor spending behavior from young people. You don’t feel like you’re spending a lot of money," she said.

As the credit scoring landscape evolves, it remains uncertain how quickly lenders will adopt the updated FICO model. Rossman cautioned that change in the credit scoring world is slow, likening it to the gradual adoption of new smartphone models. While FICO plans to roll out the new scoring system in fall 2025, many financial institutions still rely on older models, which may delay the benefits of the new BNPL inclusion.

In conclusion, the integration of BNPL loans into credit scores presents a dual-edged sword for consumers. While it could empower responsible borrowers to improve their credit profiles, it simultaneously poses risks for those who may struggle with debt management. As this system unfolds, it will be crucial for consumers to navigate these changes with caution and financial literacy to make informed decisions about their borrowing habits.