Buying Gen Z is now loved, the payment will later affect credit scores, which may pose risks for weak borrowers

FICO registration company said on Monday that it introduces a new model that treats loans in the short term in consumer degrees. The majority of lenders use FICO scores to determine the merit of borrower credit. Previously, the loans were excluded, although now, Pay Learn Affirm has started to report voluntarily to report the fourth payment loans to four ExpertsA separate credit office, in April.

The company said that the new Fico degrees will be available in the fall, as an option for lenders to increase the vision in the behavior of consumer payment. However, not all companies later participate, companies later share their data with credit offices, and all lenders will not choose to use new models, so adoption may take wide time, according to Adam Rost, director of financial services at the Union Non -profit consumer in America.

Here is what to know.

Why did the loans not appear in the credit grades previously?

Usually, when using the purchase now, pay the subsequent loans, consumers pay a specific purchase of four weeks over a period of six weeks, in a more similar model with Layaway more than the traditional credit card. Loans are marketed as a zero interest, and most of them do not require any credit examination or a soft credit examination.

The three main offices to inform the credit, Experian, TransunionAnd EquifaxIt has not yet been combined with a standard way to include these new financial products in its reports, as they do not adhere to the current models of lending and payment. FICO, Fair Isaac Corporation, uses data from offices to calculate their credit degree, and they independently choose to try a new degree that takes loans in mind.

Why is this important?

BNPL providers are promoting plans as safer alternatives to credit cards, while consumer advocates warn of “accumulation of loans”, as consumers take many loans simultaneously across many companies. Until now, there has been little vision in this practice in industry, and the Ostrich has led to warnings of the “debt debt” that could Consumer health mask.

In a statement, Fico said that their new credit grade model is an increasing importance to loans in the American credit ecosystems.

“I buy now, as subsequent loans later play a growing role in consumer financial life,” said Julie May, Vice President and Director General of Dozens of Business at Fico. “We enable lenders to evaluate credit readiness more accurately, especially for consumers who are the first credit experience through BNPL products.”

What does Fico hope to achieve?

Fico said that the new model will expand the responsibility of accessing credit. Many BNPL loan users are younger and consumers who may not have a good or long credit history. In a joint study with confirmation, FICO trained its new degrees on a sample of more than 500,000 BNPL borrowers and found that consumers with five loans see usually an increase in their degrees or remains stable under the new model.

For consumers who pay their BNPL loans in time, the new credit registration model can help them improve their credit scores, increase access to real estate loans, car loans and apartment rental. At the present time, loans usually do not directly contribute to improving degrees, although missing payments can harm or fall behind the result.

Since March, The credit grades decreased sharply for millionsWith the resumption of student loan payments, and many borrowers find themselves unable to pay regular payments on federal students ’loans.

What are the risks and fears?

Nadine Shabrir, a lawyer for the Politics and Supreme Course at the responsible lending center, said that her main concern is that incorporating loans into the result could have negative negative effects on the people who have already been estimated.

“There is not much information on how to combine BNPL into credit registration,” Chapler said. “Fico simulated the effect on registration of credit through a study. They have seen that some of the users have increased. But if you were treated in something that did not affect last week your balance, and this week, it is, without a lot of information about modeling, it is a little difficult to know what the consequences will be.”

Shapir More the research that appears Many BNPL users have credit cards, lower credit, explanation, and current debts. She said that women are more likely to use loans.

“This is a weak society.”

Does consumers see immediate effects?

RUST, from the Consumers Union in America, said he does not expect this to be a changing games for consumers who already have a credit file.

“Are we at a stage the use of BNPL loans significantly changing your credit file? Maybe not,” he said. “I think it is important that people have reasonable expectations.”

RUST said that the average BNPL loan is $ 135, and that the payment of such small loans, even constantly, may not lead to changes in the degree of credit that will move the needle significantly.

“It is not about moving from 620 to 624. It is about moving from 620 to 780,” he said, referring to the type of jumps that affect credit card offers, interest rates on loans, and the like.

However, RUST said that increasing transparency about loans can create a more accurate image of consumer debts, which can improve careful subscription and prevent consumers from excessive expansion themselves.

“This addresses the problem of” fake debt “, and this is a good thing,” he said. “Because it may be something that prevents people from entering deeply in the debts they cannot bear.”