Latest news with #SaraRathner
Yahoo
a day ago
- Business
- Yahoo
Buy Now, Pay Later loans popular among Gen Z, Millennials will soon affect credit scores
FICO announced it will begin factoring in Buy Now, Pay Later loans into people's credit scores starting in the fall of 2025. Credit scores affect Americans' ability to get a loan, buy a car or home, rent an apartment, and more. FICO, the data analytics company whose credit models are used in the majority of lending decisions, said scores accounting for BNPL loans will give lenders a more comprehensive view of consumers' repayment behaviors. In a joint study simulating the inclusion of BNPL data with Affirm, FICO found score impacts were generally consistent with the opening of a new account, meaning scores improved or decreased by about 10 points for the majority of consumers. FICO offers several scoring models. NerdWallet spokesperson Sara Rathner said lenders adopting new scoring takes time and most consumers likely won't notice the change this fall. 'Different scoring models are designed for different focuses,' Rathner said. "It could be years before these are largely adopted in decision making and they might not be adopted by lenders for all types of borrowing. ' Still, FICO said the introduction of this new kind of scoring represents a significant shift, as lenders catch up with consumers' growing reliance on BNPL loans. More: What is the average credit score and how is it measured? Expert tips on how to raise yours Younger generations appear to be digital BNPL loans' most common adopters. Apps like Klarna, Affirm, and Afterpay have made securing the loans easy. In many cases, it can be done on a mobile device, often without a hard credit check, and consumers can take on many loans at once. Use of these loans among Gen Z and Millennials seems to have accelerated over the last year, with about 10% of each cohort taking advantage of them, a new Bank of America report found. This comes following a three-year period of slowing use after digital BNPL platforms saw a rise in popularity. 'For some people it's because it's convenient, but there are some who are reaching for it because they've perhaps been a bit financially stressed,' said David Tinsley, senior economist at the Bank of America Institute. For those responsibly using BNPL loans to delay payments for big purchases like a home appliance, computer, or wedding dress, the FICO change could actually improve their credit score. Rathner said credit institutions had already found ways to factor in missed or late payments into people's scores, but this change could give people more recognition for their habits of paying off loans on time. 'We're certainly seeing this acknowledgement that there are lots of different ways consumers are financially responsible,' she said. 'So it is absolutely beneficial to consumers to factor that type of behavior into decision making when evaluating them for a loan.' Tinsley said while some gravitate toward BNPL loans as a way to spread out payments knowing they'll have the cash to make them, some low-income consumers with higher rates of delinquency also use them. Of course, for consumers taking on several BNPL loans at once and not paying them off, FICO's new scoring model could be another way for lenders to clearly identify that behavior. Rathner advises consumers to read the fine print before agreeing to a BNPL loan and ensure they know how much they will need to pay at what time. 'Keep that in mind with all of your other financial obligations, especially if you're using Buy Now, Pay Later frequently and you have multiple plans going on all at once,' she said. Tinsley said consumers should remember that BNPL loans usually put them on a stricter repayment schedule than credit cards. So, while they may have an initial zero-interest grace period, they will usually also have less flexibility. If people can't make the payments on time, they can be hit with late fees and interst rates equal to or greater than those they would have faced if they made the purchase with a credit card. 'Buy now pay later can be an incredible tool,' Rathner said, if you 'enter in knowing you have the money to pay it off.' If consumers are concerned about how BNPL loans are affecting their credit score, Rathner encourages them to check their score online. Checking your own score won't make it drop. Make sure it's accurate, Rathner says. If you see an account listed you don't remember opening, that could be a sign of fraud or an error. Report it to the credit bureau and the financial institution. If you apply for a loan and are denied or unhappy with the terms offered, don't be afraid to speak up. 'Speak to the lender about the factors that went into their decision and they can help you understand whether or not there are actions you can take that would improve your odds later,' she said. If consumers believe a lender's decision was unfair and based on inaccurate information, they can file a complaint with the Consumer Financial Protection Bureau. Reach Rachel Barber at rbarber@ and follow her on X @rachelbarber_ This article originally appeared on USA TODAY: Buy now, Pay Later loans will soon affect FICO scores
USA Today
a day ago
- Business
- USA Today
Buy Now, Pay Later loans popular among Gen Z, Millennials will soon affect credit scores
FICO announced it will begin factoring in Buy Now, Pay Later loans into people's credit scores starting in the fall of 2025. Credit scores affect Americans' ability to get a loan, buy a car or home, rent an apartment, and more. FICO, the data analytics company whose credit models are used in the majority of lending decisions, said scores accounting for BNPL loans will give lenders a more comprehensive view of consumers' repayment behaviors. In a joint study simulating the inclusion of BNPL data with Affirm, FICO found score impacts were generally consistent with the opening of a new account, meaning scores improved or decreased by about 10 points for the majority of consumers. FICO offers several scoring models. NerdWallet spokesperson Sara Rathner said lenders adopting new scoring takes time and most consumers likely won't notice the change this fall. 'Different scoring models are designed for different focuses,' Rathner said. "It could be years before these are largely adopted in decision making and they might not be adopted by lenders for all types of borrowing. ' Still, FICO said the introduction of this new kind of scoring represents a significant shift, as lenders catch up with consumers' growing reliance on BNPL loans. More: What is the average credit score and how is it measured? Expert tips on how to raise yours FICO responds to BNPL's growing popularity Younger generations appear to be digital BNPL loans' most common adopters. Apps like Klarna, Affirm, and Afterpay have made securing the loans easy. In many cases, it can be done on a mobile device, often without a hard credit check, and consumers can take on many loans at once. Use of these loans among Gen Z and Millennials seems to have accelerated over the last year, with about 10% of each cohort taking advantage of them, a new Bank of America report found. This comes following a three-year period of slowing use after digital BNPL platforms saw a rise in popularity. 'For some people it's because it's convenient, but there are some who are reaching for it because they've perhaps been a bit financially stressed,' said David Tinsley, senior economist at the Bank of America Institute. Who the change helps and hurts For those responsibly using BNPL loans to delay payments for big purchases like a home appliance, computer, or wedding dress, the FICO change could actually improve their credit score. Rathner said credit institutions had already found ways to factor in missed or late payments into people's scores, but this change could give people more recognition for their habits of paying off loans on time. 'We're certainly seeing this acknowledgement that there are lots of different ways consumers are financially responsible,' she said. 'So it is absolutely beneficial to consumers to factor that type of behavior into decision making when evaluating them for a loan.' Tinsley said while some gravitate toward BNPL loans as a way to spread out payments knowing they'll have the cash to make them, some low-income consumers with higher rates of delinquency also use them. Of course, for consumers taking on several BNPL loans at once and not paying them off, FICO's new scoring model could be another way for lenders to clearly identify that behavior. What to keep in mind if using BNPL loans Rathner advises consumers to read the fine print before agreeing to a BNPL loan and ensure they know how much they will need to pay at what time. 'Keep that in mind with all of your other financial obligations, especially if you're using Buy Now, Pay Later frequently and you have multiple plans going on all at once,' she said. Tinsley said consumers should remember that BNPL loans usually put them on a stricter repayment schedule than credit cards. So, while they may have an initial zero-interest grace period, they will usually also have less flexibility. If people can't make the payments on time, they can be hit with late fees and interst rates equal to or greater than those they would have faced if they made the purchase with a credit card. 'Buy now pay later can be an incredible tool,' Rathner said, if you 'enter in knowing you have the money to pay it off.' How will BNPL affect my credit score? If consumers are concerned about how BNPL loans are affecting their credit score, Rathner encourages them to check their score online. Checking your own score won't make it drop. Make sure it's accurate, Rathner says. If you see an account listed you don't remember opening, that could be a sign of fraud or an error. Report it to the credit bureau and the financial institution. If you apply for a loan and are denied or unhappy with the terms offered, don't be afraid to speak up. 'Speak to the lender about the factors that went into their decision and they can help you understand whether or not there are actions you can take that would improve your odds later,' she said. If consumers believe a lender's decision was unfair and based on inaccurate information, they can file a complaint with the Consumer Financial Protection Bureau. Reach Rachel Barber at rbarber@ and follow her on X @rachelbarber_
USA Today
14-06-2025
- Business
- USA Today
The road to 850: Five pathways to a perfect credit score
The road to 850: Five pathways to a perfect credit score Show Caption Hide Caption Student borrowers could see credit scores drop for late loan payments Nearly 9.7 million student loan borrowers will see drops in credit scores, according to the Federal Reserve. Straight Arrow News Perfect credit, or even really good credit, opens doors for American consumers: Better interest rates on loans. Better odds of renting an apartment or landing a job. Lower insurance premiums. But how do you get there? All sorts of things can ding your credit score, from missed utility payments to maxed-out credit cards to errors on a credit report. Just 1.5% of American consumers have perfect FICO credit scores, according to Motley Fool. People with perfect credit tend to be older, according to Experian. Many of them live in Minnesota. A few are personal finance columnists. If you aren't in that elite club, don't despair. Plenty of Americans have really good credit. More than 20% of consumers have credit scores of 800 or better out of a possible 850, Experian reports. Roughly half of us have credit scores of 740 or better. Even the low end of that range is considered very good. 'I don't want the perfect to be the enemy of the good,' said Sara Rathner, credit cards expert at NerdWallet. 'If your credit score is high-700s and up, and you're applying for loans, you're in really good shape.' Here are five expert tips for improving your credit score. A few might surprise you. Pay your bills on time The biggest component of your credit score, 35%, is 'payment history.' Anyone who's thinking of lending you money wants to know, quite simply, whether you pay your bills on time. That means 'not missing any of your payments, especially more than 30 days,' Rathner said. 'All of the hard work you've been doing can be undone with one missed payment.' Credit cards, mortgages, rent, utilities: Just about anything can show up on a credit report as delinquent, if the creditor takes the time to report it. 'And especially if you're shooting for perfect credit, you'll want a perfect track record,' said Joel O'Leary, personal finance writer at Motley Fool Money. If you miss a payment, the lapse won't necessarily wind up on your credit report. There are grace periods. If you usually pay on time, the creditor might not report one missed payment. Correct the oversight quickly, and the credit universe might never know. Don't use too much credit The second-largest factor in a credit report, accounting for 30%, is 'amounts owed.' That metric refers to credit utilization: how much of your available credit you actually use. Credit utilization is tricky. The goal is to use as little of your available credit as possible. Having a higher credit limit – and more credit cards -- can help keep your utilization rate low, provided you wield credit carefully. 'And I think the best practice here is to try to keep your utilization under 30%,' O'Leary said. 'But I think the sweet spot is 10%, or even less than 10%.' The obvious advice here: Pay off your credit cards every month. Yet, it is possible to ding your credit score with a high credit card balance, even if you pay it off every month. Suppose you put a $1,000 plane ticket on a credit card with a $1,500 limit, and you pay it off 30 days later. During those 30 days, your card issuer reports that you are using two-thirds of your available credit. Your credit score goes down. To avoid that scenario, pay down your credit cards more often than once a month, especially if you are using a lot of your available credit. 'If you pay a credit card down once a week,' O'Leary said, 'it will keep your utilization lower.' Build a credit history There is more to credit utilization than meets the eye. Let's say you have five or six credit cards that you seldom use. You pick two or three of the accounts with zero balances and close them. Suddenly, you have a lot less available credit. Your credit score drifts down. It's smart to keep old, zero-balance credit card accounts open, experts say, especially if they carry no annual fee. Keeping them active will boost your available credit, while also documenting your credit history. 'It shows that you've had credit for a long time, and that you've been responsible with it,' O'Leary said. Length of credit history accounts for 15% of a credit score. That metric is all about time: How long your various credit accounts have been open, the average age of your accounts, and how often you use them. If you have a little-used credit card and want to keep it active, here's a pro tip, courtesy of Courtney Alev, a consumer financial advocate at Intuit Credit Karma: Put a recurring transaction on the unused card, such as a streaming payment, using auto-pay. Then, put the credit card itself on auto-pay, so the balance goes away each month. Monitor your credit report Nearly half of all credit reports may contain errors, according to research by the consumer groups Consumer Reports and WorkMoney. Some of those errors can lower your credit score. Consumers should review their credit reports at least once a year, the experts suggest. You can access your reports at no cost on the website If you find an error, report it. You can report errors on any of the three credit bureau websites. If the error is on a specific account, you can also contact the company directly. Also consider monitoring your credit and getting alerts when your report changes. Some banks offer free credit monitoring. Experian and Credit Karma offer superior credit monitoring services, according to Investopedia. 'Make sure you are monitoring your credit regularly,' said Alev of Credit Karma. 'So many people don't think about their credit score until it's time to apply for an apartment, or apply for a loan.' Beware of 'hard' credit inquiries Any time you apply for new credit and the creditor pulls your file, it can affect your credit score. These are called 'hard inquiries,' and they can influence your score for 12 months, according to Experian. You'll typically incur a hard inquiry if you apply for a credit card, auto loan or mortgage, among other scenarios. 'And while one or two isn't a big deal, if you apply for too many in a short period,' it's a red flag, said O'Leary of Motley Fool. 'New credit' accounts for 10% of a credit score. The takeaway: If you are about to apply for a mortgage or car loan, then 'it might not be a good idea to apply for a whole bunch of credit cards' right now, Rathner said.
Yahoo
12-02-2025
- Business
- Yahoo
Would you date someone with credit card debt? Here's what Americans say
The Brief 10% of Americans say they would never date someone with credit card debt, according to a NerdWallet survey. The average "dealbreaker" amount for credit card debt is $20,711, but many say having a repayment plan makes a difference. 67% of Americans wouldn't continue dating someone who lied about their debt. LOS ANGELES - Would you date someone with thousands of dollars in credit card debt? For some Americans, the answer is a hard no. A new survey from NerdWallet asked Americans how much debt they'd tolerate in a romantic relationship, and the results show that money matters when it comes to dating. While most Americans (90%) say they would date someone with credit card debt, many set a limit on how much they're willing to accept. For some, it's not just the amount that matters—financial responsibility and honesty play a major role. Lying about debt, for example, is a bigger dealbreaker than having it. By the numbers The survey asked over 2,000 U.S. adults how they feel about debt in relationships. While most Americans (90%) would date someone with credit card debt, they have limits on how much is too much. On average, $20,711 in credit card debt is a dealbreaker in relationships. The median "dealbreaker" amount is just $1,000, meaning many people prefer minimal debt. 39% of respondents say they don't care how much debt their partner has. Generational differences also play a role. Younger Americans are more likely to reject dating someone with debt: Gen Z (ages 18-27): 15% Millennials (ages 28-43): 13% Gen X (ages 44-59): 7% Baby Boomers (ages 60-78): 6% Sara Rathner, a NerdWallet credit cards expert, says financial responsibility isn't just about dating—it's about personal stability. "Knowing how to handle your finances shows other people that you're more capable of being a true life partner," Rathner said. The other side A person's approach to debt matters more than the amount they owe. According to the survey: 67% of Americans wouldn't continue dating someone who lied about their debt. 76% say having consumer debt isn't a dealbreaker—as long as there's a clear plan to pay it off. Experts say being upfront about finances can strengthen relationships. Even if someone has significant debt, an honest conversation and a solid repayment strategy can make a difference. The Source This article is based on reporting from NerdWallet and The Harris Poll survey data.
