FICO adds BNPL data to credit-scoring models

FICO has updated its latest credit score models to include buy now, pay later data, showing how important this pandemic-era tool has become in the overall consumer debt market.

The credit score algorithm provider has introduced the capabilities in FICO Score 10 BNPL and FICO Score 10T BNPL.

"Our clients tell us that FICO's initiative to include BNPL data in credit scoring is a progressive step that acknowledges the evolving landscape of consumer financing," said Julie May, vice president and general manager of B2B scores, in a press release. "By capturing a broader view of consumer credit behavior, lenders believe they can make more informed decisions, ultimately benefiting both the industry and consumers."

How FICO tested buy now, pay later data

In a March discussion with National Mortgage News, May previewed FICO's plans to include BNPL data in its credit assessments.

It benchmarked customers with at least one BNPL loan from Affirm against those with none, and ran simulations on what those loans would do and how it could impact the consumer's credit score, May said at the time.

With these enhancements to the model, "we're enabling lenders to more accurately evaluate credit readiness, especially for consumers whose first credit experience is through BNPL products," May said in the press release. "This innovation also supports our mission to expand financial inclusion by helping more consumers gain access to credit."

All three credit bureaus started collecting buy now, pay later data back in 2022. However, such reporting by creditors has been inconsistent. Until now, existing algorithms did not incorporate the information.

How political developments are impacting credit scoring

So far, widespread mortgage market adoption of 10T, along with rival product VantageScore 4.0, is on hold pending action from the Federal Housing Finance Agency under Director Bill Pulte.

The Biden-era proposal from then-Director Sandra Thompson called for bi-merge (from two credit bureaus) reports using both FICO 10T and VantageScore 4.0. As of now, conforming mortgages still require Classic FICO.

In May, a group of Republican legislators sent a letter to Pulte taking issue with Thompson's plans and instead asking to keep the tri-merge framework already in use.

But the Mortgage Bankers Association is now advocating for a single bureau credit report pull, arguing any gaps in coverage or quality that once required multiple score creation to determine worthiness for a home loan no longer exist.

Also on hold are Consumer Financial Protection Bureau rules, which regulate BNPL products.

Consumer demand for buy now, pay later

TransUnion's second quarter Consumer Pulse survey found that among Americans planning to add credit in the next 12 months, with 20% looking to request new buy now, pay later payment services, unchanged from the first quarter. This was fourth in the rankings behind a new credit card, increasing the limit on a current card and taking out a personal loan.

For those concerned about the impact of tariffs, 23% said they would seek BNPL credit versus 17% for all others.

VantageScore declined to comment on a BNPL model. Private mortgage market use of the VantageScore 4.0 model increased 166% in 2024, it said earlier this year.

What are the results of VantageScore 4plus' pilot?

Despite reports of increased use of the Vantagescore 4.0 model in the private marker, separately the provider put out a press release on Monday morning stating it completed two pilots on VantageScore 4plus, which uses alternative open banking data.

The pilots were with Patelco Credit Union and Michigan State University Credit Union.

The results indicated quantitative improvements in credit risk prediction and expanded access to credit for underserved consumers. Specifically, 33% of subprime and 41% of near prime consumers moved to a higher credit tier through the use of open banking data at Michigan State University CU. The Patelco pilot found 12% of subprime and 15% of near prime members were upgraded to a higher credit tier.

"These results show that open banking data, when used responsibly and in combination with credit file data, can dramatically improve both risk management and financial inclusion," said Andrada Pacheco, executive vice president and chief data scientist at VantageScore in a press release. "What excites us most is the real-world impact—helping lenders say yes more often to credit-worthy consumers."