With more than $150 billion in shadow debt in play, Weinberg says a borrower with a 750 score could really be a 620, and nobody will know until something goes wrong
Mortgage borrowers could be carrying significant debt that may never show up on their credit report, and a new report from the Federal Reserve shows just how much of this shadow debt is burdening potential mortgage customers.
Buy now, pay later services like Affirm and Klarna, among others, have grown rapidly as an alternative to traditional credit cards, with manageable payments and frictionless applications. A June Federal Reserve report estimated total US BNPL credit issuance reached approximately $156.7 billion in 2025, nearly 80% higher than the most recent CFPB measurement, and in most cases those balances never appear on a borrower's credit report.
One private lender in Colorado has been watching this develop and said the mortgage industry is largely unaware of how much hidden credit risk has accumulated in the borrower pool. He said the scoring models may actually be rewarding the wrong borrowers.
Glen Weinberg (pictured top), COO and partner at Fairview Commercial Lending in Colorado, said the credit scores and debt-to-income (DTI) numbers brokers are seeing may be complete fiction.
"People are goosing their credit scores because instead of using a credit card, they do a BNPL loan like Affirm or Klarna, and it doesn't show up on your credit," Weinberg told Mortgage Professional America. "So you can go buy a house, a car, whatever. No impact. And yet you have $2,000, $5,000, $10,000 — who the hell knows — of these buy now, pay later lines out there that nobody knows about. Because it's not showing on credit reports."
Penalizing the wrong borrowers
The credit reporting situation is more complicated than a simple gap, Weinberg said. Some BNPL providers do appear on credit reports, but even when they do, the balances are not meaningfully factored into the credit score. The Fed report found that 63% of total BNPL issuance in 2025 carried zero percent APR, meaning borrowers who may be underwater may not appear that way in calculations.
"Even if it is on there, it's not impacting the score," he said. "We don't know how to factor in that payment because we don't know what the high balance is. It's not like a typical credit thing. So the credit scores are considerably overstated."
The effect, Weinberg said, inverts what a credit score is supposed to measure. Historically, BNPL users skew toward higher credit risk because credit card limits are unavailable or tapped out, yet their scores do not reflect that.
"Credit scores could be showing just the opposite, and penalizing the person using a credit card when they should be rewarding them for using the credit card and not using the buy now, pay later," he said. "Because historically we've seen the people who use buy now, pay later are higher credit risk. That's why they're using it. But the credit scores aren't reflecting that."
Hidden debt, hidden DTI
The BNPL problem compounds with the DTI ratio, Weinberg said. A borrower with thousands of dollars in BNPL obligations is carrying real monthly payments that do not show up anywhere in the underwriting file.
"They're delinquent on buy now, pay later loans and the government's still giving them a house because they still show 700 credit," he said. "And yet they shouldn't be getting any credit because of their super high credit risk."
Weinberg said nobody knows how large the aggregate exposure is, who holds the paper, or how those loans will perform in a downturn.
"There are these risks in the economy that we aren't really quantifying," Weinberg said. "We have no clue how they'll perform when things go down. Is buy now, pay later the kind of fuel that's going to light off the next crisis, like the mortgage crisis? We have no clue."
Weinberg said the answer to elevated credit risk is not a better scoring model but equity. The factor that determined whether a lender took a loss in 2008, and across every credit profile since, was not the borrower's credit score but the presence of property equity.
"The only thing that differentiates whether you're going to take a loss or a hit isn't a credit score," he said. "It's your equity in the property. It doesn't matter whether you're a million-dollar home or a $500,000 home. It's all about equity. At the end of the day, if you have equity and you underwrite properly, you'll get out."
Loans at 95% and 100% loan-to-value, underwritten on credit scores that do not account for BNPL exposure, are compounding risk in ways the current system has no mechanism to measure, he said.
"That person with a 750 score really should have a 620 score if you factored in buy now, pay later," Weinberg said. "And unwinding all this – and it's going to unwind, it's just how and when."
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