Your Credit Score: What Buy Now, Pay Later Really Means

Credit scores are evolving. FICO, a major credit scoring company, is now incorporating "buy now, pay later" (BNPL) data into some of their scores. This change could significantly impact how lenders assess your financial health.

The Rise of BNPL

BNPL services are ubiquitous, allowing consumers to break down purchases into smaller, more manageable payments. Essentially, it's a modern take on the traditional layaway plan. In 2024, 15% of American adults used this payment method, with popularity peaking among younger people, women, and those with lower incomes.

Who's Using BNPL?

A broad demographic embraces BNPL for its convenience and ability to spread out costs. However, the average BNPL loan is relatively small, around $142. While not a substantial amount, it still constitutes debt.

Why Include BNPL Data?

Lenders aim for a comprehensive view of your finances. Without BNPL data, they might extend more credit than you can comfortably manage, posing risks to both parties. Some companies, like Affirm, are already sharing this data with credit bureaus.

Impact on Your Credit Score

The effect on your credit score varies. Timely payments can boost your score, while missed payments can harm it. FICO reports that most users experienced only minor score changes. However, nearly a quarter of BNPL users made late payments last year.

The Catch: Lack of Protections

Unlike credit cards, BNPL services don't offer the same level of consumer protections. Disputes can be challenging to resolve. The Consumer Financial Protection Bureau attempted to address this, but the new rule might be rescinded.

The Bottom Line

If you use BNPL responsibly, this change could benefit your credit score. However, misuse could have adverse effects. Always remember: wise debt management is key to maintaining a strong credit score.