Have you been enjoying the flexibility of Buy Now, Pay Later (BNPL) services? If so, you may have experienced a time with minimal consequences for delayed payments.
BNPL allows shoppers to break the cost of a purchase into several payments. For numerous Americans, this appealing method of managing their finances is especially relevant in today’s inflationary climate.
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As BNPL services gain traction, they are becoming an accepted form of credit. A survey revealed that 86% of Americans trust BNPL as a payment option, with three out of four users feeling more confident in these services compared to credit cards. (1)
Nonetheless, 44% of individuals using BNPL express concerns about the potential impact on their credit scores, which is a valid concern. Credit agencies are starting to incorporate BNPL payment history into their scoring models.
This fall, FICO announced plans to incorporate BNPL information into its scoring frameworks. (2) Furthermore, Experian is set to include data from Affirm, a notable BNPL service, within this year. (3) So, who should be cautious about this change in credit scoring?
Approximately 30% of the U.S. population has utilized BNPL services. (4) In 2024, an estimated 86.5 million Americans will embrace this payment option, increasing from 49.2 million in 2021. The research firm eMarketer predicts that by 2025, 91.5 million U.S. consumers will utilize BNPL loans.
A significant appeal of BNPL lies in its convenience. Many platforms integrate these services into online checkouts, allowing users to manage payments with just a few clicks. Additionally, some prefer BNPL as it generally avoids the credit checks and interest charges associated with credit cards.
The average BNPL loan hovers around $135, but managing several of them simultaneously can complicate repayment. A LendingTree survey indicated that 54% of BNPL users have missed at least one payment.
As FICO plans to factor BNPL activity into credit scores, late payments may negatively impact future credit evaluations. Although FICO hasn’t detailed specific criteria, payment history is likely to be a central element where many users fall short.
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FICO’s initiative does not mean you should steer clear of BNPL indefinitely. However, it does emphasize the importance of responsible usage.
