FICO Just Made a Big Change to Credit Scores and It’s Good News for Anyone With Debt

"Buy now, pay later" (BNPL) loans have exploded in popularity, especially among younger consumers. Up until recently, borrowing tied to these loans was not included in your credit score.

That just changed. FICO will soon include these loans in its credit-scoring model. Find out how this works so you can stay on the right track to build wealth.

What did FICO change about credit scores?

FICO soon will introduce two new scores — FICO Score 10 BNPL and FICO Score 10 T BNPL — that include data related to BNPL loans.

That's a big shift. Previously, these short-term loans — which often include four interest-free payments made biweekly — were not factored into scoring. FICO will launch these new scores in the fall, according to a Wall Street Journal report.

If lenders so choose, they can begin using these new scores alongside existing FICO scores when determining a borrower's creditworthiness.

FICO's reasoning for adopting the new scores is pretty straightforward. BNPL loans have exploded in popularity, but this hasn't been apparent in credit scores. The new scores give lenders a more complete look at repayment behavior.

However, the Journal notes that while the new score will be available to consumers, the three major credit-reporting agencies — Equifax, Experian, and TransUnion — have not yet decided whether the scores will be shared with lenders.

Why does this change matter?

BNPL loans are most popular with younger borrowers, with 42% of millennials and members of Gen Z now using them, according to J.D. Power.

Including these loans in FICO scores can help responsible, younger buyers boost their credit faster, especially if they lack other credit history.

As BNPL becomes a mainstream credit tool for younger consumers, this change could help them demonstrate creditworthiness so they can access more traditional credit on favorable terms.

What is likely to happen to your credit score?

FICO completed a year‑long study with Affirm, a company that offers BNPL loans. It showed that for the overwhelming majority of Affirm customers, credit scores shifted by approximately 10 points when BNPL data was included in scoring.

Scores were more likely to move in a positive direction than a negative one. However, as with any credit score, the key is to manage loans responsibly and make payments on time.

If you do so, your score is likely to climb. This could make it easier to get more traditional loans with favorable terms.

Which factors determine my credit score?

Your FICO score is computed using five key factors, each weighted differently.

Payment history makes up about 35% of a FICO score, reflecting how consistently you've paid past debts. The amount you owe compared to the amount of credit available to you counts for roughly 30% of your FICO score.

The length of your credit history accounts for 15% of the score, while credit mix — the variety of credit to which you have access — and applying for new credit each contribute around 10%.

Taken together, these factors provide lenders with a snapshot of your creditworthiness.

How can I check my credit score?

There are many ways to access your credit score. For example, many credit card lenders now routinely display your FICO or VantageScore when you log in to your account online.

Nonprofit credit and housing counselors can also provide credit scores and guidance at no cost.

You can get a free copy of your credit report — but not your credit score itself — by using the AnnualCreditReport.com website.

What can I do to improve my credit score?

Improving your credit score starts with paying bills on time, every time. This will fortify your payment history.

Also, keep your credit utilization low. This is the number that shows how much of your credit you are using compared to how much is available to you. Try to keep your utilization below 30% of your available credit, as this shows you're using debt responsibly.

Maintaining older accounts also lengthens your credit history, which can boost your score. So, even if you stop using a credit card, you might want to leave the account open unless doing so tempts you to spend more.

You should also avoid opening multiple accounts or submitting several credit inquiries in a short span of time, as this can drag down your score. Of course, also check your credit report regularly and dispute any potential inaccuracies.

Bottom line

Beginning this fall, FICO will include "buy now, pay later" loans in its FICO 10 BNPL and 10 T BNPL scores. This change potentially gives lenders a more comprehensive view of repayment behavior and could benefit responsible users.

That said, 41% of borrowers with BNPL loans report having paid late at least once in the past year, up from 34% the previous year, according to a recent LendingTree survey. This could significantly impact their credit history, especially if the number of late payments continues to increase.

Timely payments are crucial if you want to maintain a good credit score and boost your financial fitness.

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