One of the benefits of buy now, pay later loans is changing.

FICO, the company that calculates most of Americans' credit scores, announced Monday it would be releasing a credit score model this fall that considers BNPL loans, The Wall Street Journal first reported. 

Banks and lenders will be able to see one score that considers users' BNPL loans and one that does not, and decide which to use as they consider borrowers' creditworthiness, WSJ reports. The three credit reporting bureaus — Equifax, Experian and TransUnion — can then decide which score borrowers see and what's included in their credit reports. 

"This is an area where I welcome greater controls when it comes to borrowing," says Douglas Boneparth, a certified financial planner and founder of Bone Fide Wealth. Boneparth recently called BNPL plans a "scam" in a LinkedIn post.

"If someone who's demonstrated bad borrowing behavior in the past is trying to continue that behavior through buy now, pay later programs, but now is unable to do that because [of] credit reporting, then I welcome those types of controls," he added.

Currently, BNPL plans don't directly impact users' credit scores. There's no hard inquiry for users to get approved for the installment loans and if they don't make their payments on time, they typically incur late fees or interest fees. However, they could eventually have their debt sold to a debt collector, at which point the loans could affect their credit scores.

Around 40% of BNPL users say no impact to their credit score is one of the top benefits of the plans, according to a recent survey of over 1,000 Americans by affiliate marketing agency PartnerCentric. The same survey found that 45% of users wouldn't change their BNPL use if the plans started affecting their credit score.

On the surface, BNPL plans could be useful tools for consumers who may have limited or poor credit histories but need to finance major purchases. In 2022, nearly two-thirds of BNPL loans went to users with low credit scores, a Consumer Finance Protection Bureau analysis found.

But data shows some concerning behavior among BNPL users, including taking out multiple loans at once and carrying higher balances, on average, than non-BNPL users, CFPB found. Around 63% of BNPL users took out multiple loans at the same time in the last year and 33% of users borrowed from multiple lenders.

Further, partnerships like delivery app Doordash's partnership with Klarna have critics like Boneparth sounding alarm bells because they seem to encourage users to finance smaller purchases that generally shouldn't require a loan.

"I think there's a world where buy now, pay later could be a useful tool to help young or early borrowers build good credit, but given the current framework and behaviors, it just doesn't seem that way," Boneparth says.

BNPL users routinely spend more than non-users, a recent study showed. Plus, 41% of BNPL users were late on a payment in the last year, a recent LendingTree study found.

More traditional methods of building credit, such as using a secured credit card or opening a regular credit card with a relatively small limit, have guardrails in place to help prevent consumers from overextending themselves financially, Boneparth says. But BNPL plans typically don't have those kinds of limits or credit checks, which can allow users to overspend or take on numerous loans at once. 

Of course, plenty of people get themselves into trouble using traditional financing like credit cards. Ultimately, it's up to individuals to learn how to use financing options wisely.

"Using credit requires discipline," Boneparth says. "Whether it's credit card lenders or buy now pay later programs, it is not a great consequence when you cannot make good on [your loans]."

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