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FICO to incorporate buy-now-pay-later loans into credit scores

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Re: FICO to incorporate buy-now-pay-later loans into credit scores

#61

Post by ProAm »

PostOnce wrote: post #13

Theoretically, credit should be used for one thing: to make more money. (not less) However, instead of using it to buy or construct a machine to triple what you can produce in an hour, the average person is using it to delay having to work that hour at all, in exchange for having to work an hour and six minutes sometime later. At some point, you run out of hours available and the house of cards collapses. i.e., credi…

This is so wildly qrong I dont know how to start. Im assuming this person is not in America, where a lot of the population (unfortunately) uses these practices to buy things that are needed/non-essential) its a shell game the creditors were willing to pay. But now its a lot so its going to affect credit (which is should have to start).

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#62

Post by scarface_74 »

janalsncm wrote: post #52

What is the functional difference between BNPL and credit cards that can explain why it’s become popular? A credit card is literally “buy now pay later” so is it just the ease of onboarding?

Fixed payment schedule and no interest being charged.

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#63

Post by dehrmann »

p1necone wrote: post #37
ecshafer wrote: post #6

This would probably only affect the people with the worst credit scores I imagine. I just don't see a ton of 800+ credit score people deciding to spend 5 payments of $20 for a pair of $80 shoes.

Shifting a cost forward a couple months interest free is a great deal for people who are financially responsible, especially if you have some other loan (like a mortgage) that you could be paying off more of instead. It's no different to the practice of using a credit card for everything and then paying off in full a month later because the credit card interest is lower (often zero if you pay off within a month) than…

I briefly looked into this, but I wasn't convinced the juice was worth the squeeze. My cash is automatically getting ~4%, but there's too much fine print to make sure the BNPL rate really is 0%, I'm sacrificing 2% cash back, and missing one payment makes the whole endeavor negative ROI.

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#64

Post by bitmasher9 »

scarface_74 wrote: post #60
bitmasher9 wrote: post #57

Earlier quoted context omitted.

Let’s say you finance $40,000 in auto debt over 5 years. With a low interest rate of 6% paying $6,300 in interest. That’s over 15% of the amount borrowed! Many people have lager rates over longer periods. Now consider what would happen if you invested that $6,300 for 30 years instead of spent it on interest. You’re losing out on tens of thousands of dollars in total lifetime wealth. When you borrow money to “enjoy li…

Well seeing that you need a car to go to work to have money to invest in the first place… And before you say “buy an old beater”, then you have to contend with an unreliable car that may cause you to be late to work and get fired. It’s also much easier and cheaper to get a car loan for a newish car than to borrow money to fix a car.

Im just encouraging people to do the math, and to consider borrowing smaller amounts of money over shorter periods of time.

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#65

Post by p1necone »

mNovak wrote: post #43
p1necone wrote: post #37

Earlier quoted context omitted.

Shifting a cost forward a couple months interest free is a great deal for people who are financially responsible, especially if you have some other loan (like a mortgage) that you could be paying off more of instead. It's no different to the practice of using a credit card for everything and then paying off in full a month later because the credit card interest is lower (often zero if you pay off within a month) than…

In the case of a 0% grace period sure I agree, but otherwise in no world is credit card interest cheaper than a mortgage over the same time period.

You're right, I was misremembering - it's just the 0% interest when you pay off the full balance every month that makes this worth doing.

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#66

Post by charcircuit »

firesteelrain wrote: post #48
UltraSane wrote: post #23

Earlier quoted context omitted.

If customers make every payment their score should improve.

Not if it shows a bunch of Affirm loans. You could look overleveraged for say getting a mortgage

Are people taking out a large number of large Affirm loans though?

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#67

Post by tonyhb »

msgodel wrote: post #55
PostOnce wrote: post #13

Theoretically, credit should be used for one thing: to make more money. (not less) However, instead of using it to buy or construct a machine to triple what you can produce in an hour, the average person is using it to delay having to work that hour at all, in exchange for having to work an hour and six minutes sometime later. At some point, you run out of hours available and the house of cards collapses. i.e., credi…

I tried using one of these offering a 0% intro APR to finance an upgrade to the boat I eventually moved into (saving me 10s of thousands in rent.) They wouldn't let me do it despite having an upper 700s credit score. It's not clear to me how they pick people to lend to.

It’s not just the credit score - the APR offered is also chosen by the retailer.

0% financing costs the retailer 8%(ish) of the total amount, which is how the lender makes their money.

So in your case, the retailer didn’t want to lose that much of their margin.

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#68

Post by bitmasher9 »

firesteelrain wrote: post #48
UltraSane wrote: post #23

Earlier quoted context omitted.

If customers make every payment their score should improve.

Not if it shows a bunch of Affirm loans. You could look overleveraged for say getting a mortgage

1. Maybe they are over leveraged, let a bank to decide with all the data.

2. BNPL often has short durations (3 months) so it’s not a long term problem for people with BNPL if they pay it all back.

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#69

Post by SoftTalker »

scarface_74 wrote: post #62
janalsncm wrote: post #52

What is the functional difference between BNPL and credit cards that can explain why it’s become popular? A credit card is literally “buy now pay later” so is it just the ease of onboarding?

Fixed payment schedule and no interest being charged.

For most of them, interest accrues from the date of purchased but is not charged if you pay on time. If you don’t, you owe all the back interest from day one.

Re: FICO to incorporate buy-now-pay-later loans into credit scores

#70

Post by bediger4000 »

FICO scores are a joke. They hint at what they use to calculate them, but the algorithms are kept secret. Fair Isaac can't reveal the algorithms, otherwise they'd get gamed. Incentives to keep bad info and wrong info in dossiers are strong, too. If allowed, Fair Isaac would put rumors and other bullshit on n your file, and never take it out.
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