Is Your Buy Now, Pay Later Habit Helping or Hurting Your Financial Future?

Buy Now, Pay Later (BNPL) services have transformed from a convenient shopping option into a mainstream payment method. According to a WSFS Money Trends Survey, 38% of adults in the Greater Philadelphia and Delaware region used BNPL in the past year. While these services offer an appealing alternative to credit cards, allowing shoppers to split purchases into manageable, often interest-free installments, this convenience can come at a cost.

Research from the Federal Reserve revealed nearly a fourth of BNPL users have fallen behind on payments. While these BNPL payments have historically flown under the radar of traditional credit reporting, that’s about to change. FICO announced it will formally include BNPL repayment data in some of its credit scoring models. This shift represents a fundamental change and could significantly impact millions of Americans’ financial futures.

Understanding FICO’s New Approach

Historically, most BNPL activity went unreported to traditional credit bureaus, creating what experts call “phantom debt” — borrowing that existed outside the traditional credit monitoring system. With the launch of FICO’s two new models (FICO Score 10 BNPL and FICO Score 10T BNPL), this blind spot is being eliminated.

The new scoring models will factor in BNPL repayment history, frequency of use, and outstanding balances for credit score calculation. While each of these activities is weighed differently, they contribute to a comprehensive view of a Consumer’s financial situation. That picture makes up a credit score which can play a role in mortgage rates, apartment rentals, insurance premiums, and, in some cases, employment opportunities.

This change offers both opportunities and risks. For those who manage BNPL responsibly, making payments on time and keeping track of use, this shift could provide another pathway to strengthen credit profiles. This is particularly beneficial for young Consumers who can build credit through BNPL use. However, for those who don’t properly manage BNPL habits — frequent borrowing, missed payments, or multiple concurrent loans — this change could negatively impact their creditworthiness.

Credit Score Protection

With these changes, Consumers need to approach these services with the same discipline as credit cards or traditional loans.

• Think Before Buying. Avoid using BNPL for small, everyday purchases like takeout or groceries. These frequent, small transactions can quickly accumulate and become difficult to track. Reserve BNPL for larger, planned purchases where the installment structure genuinely helps larger financial goals.
• Treat Payments Like Rent. BNPL due dates should be considered non-negotiable. Set up automatic payments whenever possible to ensure a due date isn’t missed. On top of additional costs for missing a payment deadline, 35% of a FICO score comes from a Consumer’s payment history.
• Monitor All BNPL Obligations. Create a clear picture of all monthly BNPL commitments including payment dates, amounts, and remaining balances.
• Limit Multiple Loans. The Consumer Financial Protection Bureau found nearly two-thirds of BNPL users juggle multiple loans simultaneously, increasing the risk of becoming overextended.

As the landscape of credit evolves, understanding these changes and adapting financial habits can position Consumers to benefit from this shift, rather than be hindered by it. If you have questions about how this will impact your financial future, meet with one of our Associates to discuss the best way to manage your debt and improve your credit score.