FICO's BNPL Credit Score Revolution: Opportunity or Risk for Affirm, Klarna, and the Future of Consumer Finance?

The credit scoring landscape is undergoing a seismic shift. Beginning in fall 2025, FICO's new BNPL-integrated scores—FICO Score 10 BNPL and FICO Score 10 T BNPL—will redefine how Buy Now, Pay Later (BNPL) loans influence creditworthiness. For platforms like Affirm (AFFRM) and Klarna (KLAR), this marks both a golden opportunity to drive adoption and a high-stakes test of their ability to navigate regulatory scrutiny and financial risks. Here's why investors must pay close attention.

The Opportunity: Credit Visibility Fuels Adoption

BNPL platforms have long operated in a “credit-neutral” gray area. Users could access short-term loans without fear of dings to their FICO scores—a key driver of their popularity. But FICO's inclusion of BNPL data opens a two-way door:
1. Credit-building upside: Timely payments on Affirm's “Pay in 4” plans or Klarna's longer-term loans could boost users' credit scores, attracting borrowers who prioritize financial health.
2. Wider accessibility: The 30% of U.S. adults with limited credit history (per Experian) now have a pathway to establish credit through BNPL—expanding Affirm and Klarna's addressable market.

Affirm's early leadership in data-sharing (reporting all new loans to Experian and TransUnion since 2024) positions it to capitalize. Its users stand to gain the most credit-score benefits, potentially driving loyalty and repeat usage. Meanwhile, Klarna's partial reporting—excluding its signature “Pay in 4” transactions—could limit its competitive edge unless it accelerates data integration.

The Risk: Stricter Underwriting and Regulatory Crosshairs

While FICO's move opens doors, it also introduces new vulnerabilities:
1. Underwriting tightness: Lenders using FICO's new scores will now see BNPL debts as part of a borrower's financial picture. This could lead to rejections for overextended users, reducing demand for high-volume, short-term loans.
2. Delinquency exposure: With BNPL payment histories now impacting scores, platforms with high default rates (41% of users missed payments in 2024) face reputational and financial risks.

Klarna's reliance on unreported short-term loans creates a blind spot. If its users' late payments begin dragging down scores, Klarna could face backlash from consumers and lenders alike. Meanwhile, Affirm's broader reporting aligns it with FICO's goals, but its stock could still suffer if its 36% year-over-year GMV growth (Q1 2025) slows under stricter credit checks.

Investment Strategy: Pick the Strongest Partnerships

The winners in this era will be BNPL leaders with two critical advantages:
1. Robust data-sharing partnerships: Affirm's early collaboration with FICO and credit bureaus sets a benchmark. Investors should prioritize companies like Affirm that fully report all loan types, ensuring their products are “credit-score friendly.”
2. Low delinquency rates: Platforms with disciplined underwriting (e.g., Affirm's focus on installment loans over impulse buys) will weather scrutiny better than peers.

Avoid:
- Overexposed players with high delinquency (e.g., Klarna's 24% default rate in shorter-term loans).
- Platforms lagging in credit bureau reporting, which risks being sidelined in FICO's scoring ecosystem.

Conclusion: BNPL's Future is Credit-Driven—Choose Wisely

FICO's inclusion of BNPL data isn't just a technical update—it's a paradigm shift. It turns BNPL from a “free lunch” into a tool that demands financial responsibility, rewarding disciplined platforms while penalizing opaque or risky operators.

For investors, Affirm emerges as the best-in-breed play, given its data-forward strategy and alignment with FICO's vision. Klarna, however, faces an uphill battle unless it accelerates reporting and reduces defaults. With BNPL transactions projected to hit $108 billion in 2025, the sector's growth is undeniable—but its winners will be those who master the new rules of credit.

Invest with eyes wide open.