FICO to incorporate buy-now-pay-later loans into credit scores

If customers make every payment their score should improve.

What is the benefit for a consumer to use this type of loan and then pay it back on time versus using a credit card and then paying the card back on time?

To me this seems like a new product that would target a different consumer than the one that makes payments on time. But I would like if someone challenges this view. Thanks!

> What is the benefit for a consumer to use this type of loan and then pay it back on time versus using a credit card and then paying the card back on time?

Slightly longer repayment time frames. (Multiple months instead of just one.)

It’s like layaway. Also you didn’t really need credit before to get them.

Not if it shows a bunch of Affirm loans. You could look overleveraged for say getting a mortgage

Are people taking out a large number of large Affirm loans though?

1. Maybe they are over leveraged, let a bank to decide with all the data.

2. BNPL often has short durations (3 months) so it’s not a long term problem for people with BNPL if they pay it all back.

We don't really know that. The algorithm is secret.

Lower interest because the seller pays the interest

A CC gives 1% cash back. Your bank's savings give 4% interest. BNPL doesn't earn the cash back, but over a long term you make more in interest for some purchases.

For small puchases with short repayment periods? Not a clue.

Affirm can go up to 60 months on larger purchases

A bunch of tiny loans does not loom good

This sounds like a consumer that does not pay the balance each month…

But a lower interest expense is not relevant to a consumer that pays the balance on time…

I guess it would make sense for larger purchases that could not be paid within a month..,,

That's an incomplete answer because it doesn't take total debt burden and history of payments into account over time. Score is fluid and should decrease while debt burden is high or increases. At the end though, score should improve slightly because they are slightly more trustworthy having repaid what was promised.

Urban myth.

I successfully applied for a mortgage with ~30 credit cards open. Nobody batted an eye, or even commented on it. They looked at balances and credit score. Balances were almost all zero and credit score was excellent.

A hundred small loans that were all paid off on time over the last decade is extremely helpful getting you a mortgage, it doesn't hurt.

CC gives me 30 days to pay it back interest free. BNPL gives me 2, 3, 6, or more months with very little or even no interest. If I know I'm not going to be able to pay it off in a month, I'd rather do a BNPL loan since it's so cheap. Additionally, you can have awful or no credit and still be approved for BNPL. It may be beneficial to have some repaid loans on your credit if you ruined your credit earlier in life like this credit builder CCs that have a super low limit.

> Balances were almost all zero and credit score was excellent

Not the same.

> hundred small loans that were all paid off on time over the last decade is extremely helpful getting you a mortgage

Again, not the same.

Affirm can be worse than credit cards because credit cards are a single line of credit of X size. The people using it don’t realize that a bunch of tiny lines of credit add up to a larger one ultimately and they can find themselves overleveraged.

If you put the cost on a credit card and paid it off over the same number of months you would pay a lot of interest.

Structuring.

I’ve used them several times, mostly because they are relatively cheap forms of credit for short durations (<12 months). I have plenty of credit available via traditional credit cards, but BNPL —- to this point —- haven’t reported usage rates to the bureaus.

Last summer our A/C went out. It ended up being about $4.5k to replace, and it was a heat emergency at the time. So I put the whole thing on Affirm for three months, at 0% interest. I paid about $50 in fees. That got us through the immediate emergency and gave me time to shop around for a better way to fund it.

I ended up taking out an auto loan with my credit union. The rates were much cheaper than a personal/unsecured loan, and I have three vehicles in the driveway without liens. The loan was for four years, but I’ve already paid it off.

In a tighter situation, BNPL not impacting your credit utilization rates is a big benefit.

I’ll add that I’ve found that the more you use Affirm at least, the better my options get.

I started by always choosing the shortest “plan”, which was 0% and no fees. After I’d paid off a few of those, I started getting offered plans of up to a year with no interest and very minimal fees.

Now, while I don’t use Affirm for luxury/unnecessary purchases, it offers better rates than any credit card I have, and better than a bank loan in many cases.

I have three Affirm loans right now, for a total of about $8k. All three of those are business expenses, and all three have increased profit in our business significantly more than they cost us.

Mortgages have always required you to disclose any BNPL plans to my knowledge.

I should have specified those durations are both interest-free. If you don't pay your credit card off after one month, it accrues interest at fairly high rates.

I wonder how it will be implemented. Because for me, Affirm shows my "purchasing power" almost like a credit card, even if it's currently utilized across multiple purchases. So I could see a difference between "making payments on an open balance of $X on an account with $Y purchasing power", even if those payments are subdivided into the original purchases, versus, "You have 7 open Affirm loans".