Credit scores in the U.S. are about to change, as Fair Isaac Corp. (FICO), the company behind the widely used FICO credit score, announced that it will launch a new model that includes “buy now, pay later” (BNPL) loans, according to the Wall Street Journal. These short-term loans, which let consumers split purchases into installments, have grown quickly in popularity, for everything from fashion to groceries. In fact, BNPL usage in the U.S. is projected to reach $108 billion this year, up from $94 billion in 2024.
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As a result, regulators were becoming worried that BNPL loans were hiding financial stress, especially when consumers took out several loans at once, which is a practice known as “loan stacking.” Because many BNPL loans haven’t been reported to credit bureaus, lenders were often unaware of how much debt a borrower already carried. However, that started to change in April when Affirm (AFRM) began reporting all new BNPL loans to Experian, with others expected to follow. Interestingly, FICO’s new model (set to roll out this fall) treats BNPL loans differently from traditional credit.
Indeed, it avoids heavy penalties for consumers who open multiple short-term plans in a short period. Instead, the model groups BNPL activity to better assess creditworthiness, especially for first-time borrowers and immigrants building up their credit histories. Early testing with over 500,000 Affirm users showed that people with five or more BNPL loans often saw their credit scores improve or stay the same. However, missed payments will still hurt scores, and ultimately, it’s up to lenders and credit bureaus to decide how they use and display these new scores.
Is FICO Stock a Good Buy?
Turning to Wall Street, analysts have a Strong Buy consensus rating on FICO stock based on nine Buys, two Holds, and zero Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average FICO price target of $2,430.50 per share implies 32% upside potential.
