The Fair Isaac Corporation — commonly known as FICO — announced in June a new version of its scoring algorithms to include buy-now-pay-later loan data. BNPL lending, more broadly, has come under criticism for encouraging credit-poor consumers to load up on debt through multiple loans. However, supporters of the FICO change say it will help people who otherwise haven’t used credit products to qualify for other, bigger loans. “This can actually give them a bridge to be able to get credit data in the credit reporting agency files,” said Julie May, vice president and general manager of B2B Scores at FICO. Independent consumer advocates also generally agree that this update could serve FICO’s intended goal of helping more people gain access to other credit products — such as credit cards, mortgages and auto loans — especially if they’re using the loans responsibly. FICO rates consumers on various factors: The amount of debt owed accounts for 30 percent of the score; timely payment of debt is another 35 percent; and the remainder incorporates factors such as the length of credit history, the credit mix, and how many new lines of credit have opened. This data is compiled by the “Big Three” credit-reporting bureaus — Experian, Equifax and TransUnion — and is then used by FICO to calculate your score. FICO uses multiple scoring models, but traditionally, they have looked at a consumer’s data as one snapshot in time. In 2020, however, FICO added a new model that looks at balance activity over two years to see whether it’s trending in a positive or negative direction. It’s this version (dubbed 10T) that will incorporate BNPL activity; its newest static model, F10, will also use this data. By adding in BNPL loans, FICO can better capture what Adam Rust, director of financial services at the Consumer Federation of America, calls “phantom debt” — debt that isn’t being reported to the credit agencies and therefore is hidden from lenders. Consumers could be in more debt than they’re able to handle, or they could be paying off purchases in a timely way. If lenders can see this data, he said, it helps them determine a borrower’s ability to repay them. Lenders will need time and money, as well as personnel training, to use the new scores, noted Ted Rossman, a credit card expert at Bankrate. FICO reports that 90 percent of lenders use some version of its models, with FICO 8 the most widely used. Fannie Mae and Freddie Mac, the two biggest government-sponsored enterprises that provide federal backing for mortgages, had planned to upgrade to FICO 10 this year, Rossman said. The agencies have since delayed the plan, but when this does happen, it “could actually be a big catalyst for change,” he added. Many things “have to go right” for this change to impact scores, Rust said. BNPL companies first have to decide whether to send in the data to the three major credit bureaus. Then, the lenders who rely on FICO scores have to decide whether it’s worth the cost to use FICO’s latest model.