Why consumers could soon see the impact of buy now, pay later loans on their FICO credit scores

Buy now, pay later loans typically split payments into 4 installments

While they're marketed as "interest-free" loans, BNPL loans often have penalties for late payments, such as late fees in varying amounts depending on the BNPL company used to make the purchase. BNPL users often pay 25% of the BNPL loan at checkout, and then pay the remaining balance in three more installments over the course of roughly six weeks, depending on the BNPL company and agreement.

The BNPL industry boomed amid a surge in online shopping during pandemic-era lockdowns

The buy now, pay later industry allows consumers to buy something immediately and pay in installments without the need for lengthy application and approval processes or high credit scores—and fintech companies Affirm, Klarna, and Afterpay are leading the charge by targeting young adults.

Affirm's COO recently said that the company believes the credit card is 'going the way of the VHS tape'

Some people use buy now, pay later apps as an alternative to credit cards. BNPL services have a lower barrier to entry than credit cards—many frequent BNPL users have low credit scores.

The Consumer Financial Protection Bureau is looking closely at BNPL

Given the lack of data around BNPL services in comparison to other financial products such as credit cards, the CFPB has conducted research to better understand BNPL products and how they could harm and benefit consumers.

BNPL's biggest risks include the ability to stack multiple loans simultaneously

Buy now, pay later loans come with some risks, such as the hefty late fees that can add up over time in the case of missed payments. However, personal finance experts say that tactics like reading the fine print can help consumers use these financial tools more safely.

BNPL may be adding a layer of debt that doesn't show up in economic data

Given somewhat limited regulation in the BNPL space, data about its usage is limited—many BNPL firms have resisted sharing information about user purchases, finances, and more thus far. As more people begin using buy now, pay later services, experts are concerned about whether BNPL is adding a new layer of "hidden leverage" to the economy.

Nearly half of millennials and Gen Z use BNPL, versus 21% of older generations

While applicants typically need a good credit score and credit history to qualify for many credit cards, that's not the case with buy now, pay later loans, making them more accessible forms of payment for younger generations.

BNPL companies typically make money via merchant fees rather than interest

When a merchant partners with a buy now, pay later app, consumers are more likely to spend more money with that merchant—meaning that the merchant is willing to pay a small fee in exchange for the ability for customers to pay with buy now, pay later.

Over 25% of Americans regret using BNPL due to unexpected costs

Almost 24% of buy now, pay later users have missed payments, with younger users (32% of 18- to 29-year-olds) being more likely to fall behind on payments than their older counterparts. (Only 12% of adults age 60 or over had done the same.)

Gap and Sephora now accept BNPL, despite paying up to 8% per sale

Despite these merchants paying roughly 2% to 8% of each sale's cost (more than they pay for most credit card processing fees), they're signing on, in part, because BNPL can help them improve their conversion rates at checkout.

The story of Apple Pay Later, a short-lived BNPL service

Apple rolled out its own buy now, pay later service in 2023, but Apple shut it down the following year. Instead, Apple made changes to let its Apple Pay users make purchases and access installment loans through BNPL company Affirm.

Do student loans affect your credit score?

While student loans can impact your credit score, that's not necessarily a bad thing. Repaying the loan on time can strengthen your credit score, whereas paying late can hurt it. To find out more about how student loans can impact your credit score, read this article.

An explanation of hard credit checks vs. soft credit checks

Some buy now, pay later services do a soft credit check rather than a hard credit check, like credit card companies would do when someone applies for a card. While hard credit checks can impact your credit score, soft pulls typically do not.

How the credit scoring system could change

Factoring rental payments into credit scores is just one proposed change some have suggested making to today’s credit scoring system to cater the system to renters as well as homeowners.

Borrowers were increasingly defaulting on private credit loans as of early 2026

Risks in private credit investing include the industry's lack of transparency and the ability of businesses to borrow more than a bank might allow against their debt. Some borrowers in early 2026, for instance, likely did not expect interest rates to be so high for so long, which could be contributing to an uptick in defaults.

The story of Klarna's IPO

BNPY company Klarna went public on the NYSE in September 2025, roughly 20 years after it was founded. At the time, Klarna made roughly three-quarters of its revenue via merchant fees, charging a small premium for each purchase.

What are business credit scores?

Businesses have credit scores the same way individuals do—with a few key differences. For one thing, business credit scores range from 0 to 100 instead of 300 to 850, and are based on factors such as bankruptcy and bill-paying habits.

Credit scores seriously suffer when individuals file for bankruptcy, and there’s no easy fix

Those who file for Chapter 7 must wait 10 years before the bankruptcy is removed from their credit report. For Chapter 13, the wait time is seven years.

How FICO and VantageScore weigh factors in credit history differently

VantageScores are sometimes lower than FICO scores because the algorithms that calculate the two scores weigh the factors that influence them differently. For instance, VantageScores typically weigh payment history more heavily than FICO scores.

Visualize the 5,000-year history of consumer credit in one infographic

Consumer loans for agriculture were likely first used around 3500 BCE, but modern consumer credit took many more centuries to be established. England's credit reporting system, for instance, dates back to the early 1800s when a group of English tailors began swapping information about customers who failed to settle their debts.

The Fair, Isaac and Company (FICO) was founded in 1956

When they created FICO, William Fair, an engineer, and his cofounder, Earl Isaac, reasoned that financial data could help a wide variety of companies improve business decisions. FICO created the first credit scoring system to help lenders be more objective.

In 2025, the 'two strikes and you're out' rule took effect to protect consumers from repeated attempts to withdraw money

After years of being delayed by litigation, a 2024 US Supreme Court ruling upheld a law that prevents lenders from attempting to take payments from accounts with insufficient funds more than twice without reauthorization. This tactic is commonly used by payday loan companies, which technically require repayment on the day borrowers receive their paychecks.

Algorithms built to detect credit card fraud can deny charges if they perceive the attempted purchase is unfamiliar or unusual based on historical data, even when a person has enough credit to make the purchase.

Since fraudulent charges are rare compared with the much greater number of transactions across purchase histories, these models have been shown to be overly sensitive, lacking sufficient training data on what legitimate fraud looks like. Models also perform less reliably for groups in low-income areas or communities of color, given less available data from which to build an accurate baseline.

Credit limits can be lowered as well as increased

Some common reasons for someone's credit limit being lowered include missed payments, an inactive account, and more.

US consumers collectively owe more than $1T to credit card companies—almost as much as they owe in auto loans.

The first steps to rebuilding your credit score include getting to know exactly what's on your credit report and figuring out how far you are from the '700 club,' or 'good score' range.

Many economists see Black Friday as a litmus test for consumer confidence

Some investors and analysts look at Black Friday’s sales numbers as a way to gauge the overall health of the retail industry—and consumer confidence at large. However, others don’t believe Black Friday results have a particularly significant impact on markets, arguing that the figures only cause short-term gains or losses.

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