BNPL's Credit Score Revolution: Why Fintech Investors Should Pay Attention to Gen Z and Millennials

The rise of Buy Now, Pay Later (BNPL) services has turned consumer finance upside down, but its most profound impact may lie in how it's redefining credit scoring models. Gen Z and Millennials, who now account for 58% and 64% of BNPL users respectively, are driving a seismic shift in financial behavior that's pressuring traditional credit systems. This disruption isn't just about how people buy sneakers or gadgets—it's about who gets access to credit, and how fintech firms can profit from the chaos.

The BNPL Boom: A Generation Defining Its Financial Identity

Gen Z and Millennials are not just using BNPL—they're relying on it. 55% of users rely on BNPL to afford purchases they couldn't otherwise make, while 51% of Gen Z and 55% of Millennials use BNPL more often than credit cards. This preference isn't just about convenience; it's a rejection of traditional credit systems they distrust. A staggering 60-70% of these groups trust BNPL providers more than credit card companies, highlighting a generational divide in financial loyalty.

The data shows BNPL isn't a fad: global adoption is projected to hit $1.2 trillion by 2030, with Gen Z and Millennials as the core drivers. But here's the catch: BNPL transactions rarely appear in traditional credit reports. Unlike credit card payments, which feed into FICO and VantageScore models, BNPL loans are often treated as “alternative data”—a footnote in the credit ecosystem. For millions of younger consumers, this creates a paradox: they're financially active but effectively invisible to traditional lenders.

Credit Scoring's Blind Spot: A Crisis in the Making

The traditional credit scoring system is built on decades of data from credit cards, mortgages, and auto loans. But for the 60% of Gen Z and 50% of Millennials with no credit history, this system is irrelevant. BNPL usage could exacerbate this divide: 39% of BNPL users have missed payments, creating financial “red flags” that traditional models can't interpret.

Enter FICO's 2025 innovation: integrating BNPL data into its scoring algorithms. This shift isn't just about inclusion—it's about survival. If credit bureaus ignore BNPL, they risk becoming obsolete. For investors, this means watching firms like FICO (FICO) and Experian (EXPN) closely. Their ability to adapt will determine their relevance in the next decade.

Fintech's Golden Opportunity: The Rise of Alternative Credit

The BNPL boom has exposed a $1.2 trillion gap in financial services: how to assess creditworthiness without traditional data. Fintech startups are rushing to fill this void. Companies like Upstart (UPST) and Zest AI, which use AI to analyze non-traditional data (rent payments, utility bills, BNPL histories), are already attracting investors.

The prize? Millennials and Gen Z control $1.3 trillion in annual spending power, but their financial lives aren't captured by legacy systems. Firms that can turn BNPL payment histories into actionable credit scores stand to dominate. For example, Affirm (AFRM) and Afterpay (APT) are already partnering with banks to share BNPL data—a move that could fast-track their entry into mainstream lending.

Risks and Red Flags: When Disruption Turns to Debt

Not all BNPL trends are rosy. The 34% of U.S. users who've fallen behind on payments underscores the risk of overextension. Regulators are taking notice: proposals to cap late fees and mandate transparency could stifle growth. Meanwhile, 41% of BNPL users worry about interest/late fees, and 25% of Gen Z have reduced essential spending to meet repayments.

Investors must ask: Is BNPL a sustainable financial tool, or a bubble built on youthful optimism? The answer hinges on two factors:
1. Regulatory clarity: Stricter rules could limit BNPL's expansion.
2. Credit model evolution: If FICO and peers fail to integrate BNPL data effectively, the credit gap will widen, favoring fintech disruptors.

Investment Thesis: Bet on the Data Architects

The winners in this space won't be BNPL providers alone—they'll be the firms that transform alternative data into financial inclusion. Here's how to play it:

1. Buy Fintech Innovators:
2. Upstart (UPST): Uses AI to underwrite loans for the “credit invisible.”
3. Zest AI: Focuses on transparent, alternative-data-driven credit models.

4. Plaid (PLDA): Already connects financial apps; could expand into credit data aggregation.

5. Short Legacy Credit Bureaus:

6. Firms like Experian (EXPN) and Equifax (EFX) risk obsolescence if they can't adapt quickly.

7. Monitor BNPL Leaders for Partnerships:

8. Affirm (AFRM) and Afterpay (APT) could gain long-term value if they become data gateways for traditional banks.

Final Verdict: The Credit Score War Has Begun

BNPL isn't just changing how people buy things—it's rewriting the rules of who gets credit, and how. For investors, this isn't a bet on Gen Z's spending habits; it's a bet on the future of finance itself. The firms that bridge BNPL's “data gap” will own the next generation's wallets. But tread carefully: regulatory headwinds and consumer debt traps could turn this revolution into a cautionary tale.

The clock is ticking. Will traditional credit systems evolve, or will fintech upstarts redefine the game? The answer could make—or break—investors' portfolios.