Your “buy now, pay later” plan will begin to affect your credit score later this year. This is the way

You can now use “Buy Now, Pay Later” for almost everything. Costco purchase Doordash (Though that doesn’t mean you should). In 2024, approximately 86.5 million people used BNPL. Capital study. But one thing BNPL couldn’t do was improve your credits. some Affirm’s plans will be reported to Experian And Transunion, most BNPL services do not report on on-time payments to the credit department. But that could change later this year.

FICO, one Two major credit scoring modelsThis week we announced a FICO score of 10 BNPL and a FICO score of 10 T BNPL scoring model. This takes into consideration your BNPL plan when creating your credit score. The new scoring model is expected to be released in the fall.

There are several reasons why it took BNPL to hit credit reports. For one, BNPL plans are technically loans, but they work just like spinning accounts, making quantification difficult. It also creates problems with existing scoring models when deciding on account age and credit usage as it is easy to qualify, stack and pay back.

Here’s how the new model is working on these short-term loans and how it can boost or hurt your credit score.

How FICO wins a BNPL plan

When your BNPL plan reaches your credit report, you will receive two scores. One is based on an existing FICO model, and the other takes into account new BNPL calculations. This provides more information that lenders should consider when evaluating borrowers, but does not actually affect older models. However, it is still unclear whether these new scoring models will help people or interfere with them.

According to John Ulzheimer, previously FICO, Equifax and Credit.com Founder of creditexpertwitness.comFICO’s existing scores would have counted each new BNPL as a new account. BNPL plans usually only take a few months, so this could reduce your average account age. 15% of your credit score.

“So, having too many new accounts open can harm your score. This reduces the average age of your account,” he said.

However, with these new credit scores, Ulzheimer said FICO has found a way for them not to consider each new BNPL as their own loans. Even if you stack multiple BNPL accounts, as long as you make the required payments, you should not see a drop in your credit score.

“Instalment debt is almost benign for the score as long as it is paid on time. So you don’t have to worry about the amount of loans, especially for BNPLs, which tend to be very low,” added Wurzheimer.

How long will it be until there are any effects?

These new scores will be released in the fall, but could go longer before widespread adoption is seen.

“It takes years for new scoring models to gain traction, so you wouldn’t expect mass recruitment by lenders to come out of the gate,” Wolzheimer said. “It’s historically atypical, and of course, only lenders who care about how BNPL loans are handled with their FICO scores are interested in these new models.”

Will this change how you use your BNPL plan?

Not that, unless you have too much debt and can’t make payments on time. Like most loans and other credit products, the most important thing is that you can manage your debt responsibly. This means not spending money that cannot be repaid in time. As long as you’re doing it, the new scoring model should not have a negative impact on your finances.