New FICO Credit Scores Incorporate Buy Now, Pay Later Transactions
The move allows lenders to get a better sense of borrowers' repayment history, FICO said.
BNPL providers have historically not had a consistent approach to reporting clients' payment history to credit reporting agencies, experts have said.FICO is factoring buy now, pay later activity into its credit scores.
Fair Isaac Corp. (FICO), an analytics company known for its credit score tools, on Monday said it would roll out two new credit products that incorporate BNPL data. The move comes after FICO spent a year working with Affirm (AFRM), a BNPL provider, to study the impact these short-term, interest-free loans may have on consumers' credit scores, according to a press release.
FICO wanted to give lenders a more comprehensive sense of consumers' repayment history, the company said in a press release, while taking into account that people may take out multiple BNPL loans in a short time period, which is less common with other types of loans.
BNPL is a term generally applied to short-term, interest-free loans, such as 'pay in four' payment plans. Many BNPL providers allow people to break up a purchase into biweekly installments that are automatically deducted from their bank account. Companies earn money on these transactions by charging merchants to facilitate them.
"Buy Now, Pay Later loans are playing an increasingly important role in consumers' financial lives," Julie May, vice president and general manager of B2B scores at FICO, said in a statement. 'We're enabling lenders to more accurately evaluate credit readiness, especially for consumers whose first credit experience is through BNPL products.'
Consumer finance excerpts have told Investopedia the BNPL sector didn't have a clear, consistent approach to reporting borrowers' activity to credit reporting agencies.
FICO shares were recently up about 3.8%, capping off a month of mostly gains. Still, shares are down nearly 6% so far this year.
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