Buy Now, Pay Later Loans Will Now Affect Credit Scores

The credit scoring company FICO recently announced it will add data from Buy Now, Pay Later loans to some of its credit scores. Buy Now, Pay Later is a type of loan that allows shoppers to break up a purchase into installments with no interest charge. You have probably seen offers from companies like Klarna or Affirm to split your payment into four installments with no interest when you check out online. They have become so popular, especially online, that in 2024, 15% of adults had used this type of payment in the last 12 months, according to the Federal Reserve.

The effect on an individual’s credit will primarily depend on whether they make their payments on time. Paying on time should help improve your credit, while missing payments could negatively impact it. The Federal Reserve reported that nearly 25% of individuals using these loans made a late payment last year. What we don’t know is how these short-term loans will impact credit utilization ratios.

As with all credit, use it when needed, make payments on time, and don’t use it to buy things that you can’t afford. If you would like to learn more about establishing and maintaining good credit, please don’t hesitate to contact me.