Suddenly your clients' 'phantom credit' is going to matter
In a shift that underscores the growing influence of short-term installment loans, Fair Isaac Corporation, commonly known as FICO, has announced it will begin incorporating buy-now, pay-later (BNPL) data into its credit scoring formulas for the first time.
The new models — FICO Score 10 BNPL and FICO Score 10 T BNPL — are slated for release later this year and will sit alongside FICO’s existing suite of credit assessments. Their arrival marks a pivotal moment in how consumer debt is measured in the United States, particularly as millions increasingly turn to BNPL services to finance everyday purchases.
“These products have moved from the margins to the mainstream,” said Julie May, vice president and general manager of B2B scores at FICO. “Capturing this form of borrowing is critical to painting a fuller financial picture.”
Buy-now, pay-later loans, which typically divide payments into equal portions over a six-week period, surged in popularity during the pandemic and have remained a preferred option among younger consumers and those without access to traditional credit. Yet, until now, the widespread use of these loans has largely gone uncounted in traditional credit models, raising concern among regulators and lenders about so-called “phantom debt” — liabilities invisible to underwriters.
The change comes at a time when signs of stress are beginning to show. According to the Federal Reserve’s annual report on household financial well-being, roughly one in four BNPL users reported missing a payment in 2024 — a significant jump from the year before.
FICO's initiative follows moves by providers like Affirm Holdings, which earlier this year began submitting its loan data — including “pay in four” arrangements — to Experian. Although this reporting is not yet factored into legacy scoring models, the foundation is being laid for more robust credit tracking.
Historically, the credit industry has struggled with how to assess BNPL borrowing. Unlike revolving credit lines or fixed-term loans, BNPL plans tend to be short in duration and low in dollar value. What’s more, current models often penalize consumers for opening multiple accounts in a brief window — a behavior common among BNPL users but not necessarily indicative of risk.
To address these discrepancies, FICO’s new models group BNPL loans together, evaluating them as a collective pattern of behavior rather than penalizing each account individually. The firm trained the scoring system using a dataset of over 500,000 users, in collaboration with Affirm. Early findings suggest that borrowers with frequent BNPL usage — five loans or more — generally saw stable or improved scores under the new model.
Still, the road ahead is uncertain. The three major credit bureaus — Experian, Equifax and TransUnion — must decide when and how to incorporate BNPL insights into the broader credit reporting infrastructure. For now, visibility remains limited. While some information is already accessible to consumers, lenders may not see the data until more consistency is established in reporting standards.
The stakes are high. The value of BNPL transactions is expected to exceed $100 billion in the U.S. this year, according to estimates by market researcher eMarketer. As these loans proliferate, so too does the need for accurate measurement tools that protect both consumers and lenders from overextension.
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