Mortgage Research Network Podcast

Welcome to the Mortgage Research Network Podcast. Just a note that this podcast is AI-generated, but the article on which it's based was produced by people. This podcast's content is also reviewed for accuracy. And your hosts, Tim and Craig, are real people. Without further ado, let's get into today's topic.
I'm your host, Tim Lucas, editor of MortgageResearch.com and a former mortgage professional, and with me is Craig Berry, a mortgage originator with 25 years of experience.
Hi everyone.
Today we're talking about Buy Now, Pay Later or BNPL loans. These services seem like a dream come true for young shoppers, but here's the twist. they're about to become a major factor in determining who can buy a home in the future.
That's really interesting timing, especially since I just saw a store offering to split a $50 purchase into four payments. It's becoming so normalized now.
The numbers are pretty staggering when you look at them. Recent data shows that almost 60% of Gen Z and Millennials are using these services, and even more fascinating. 65% of Gen Z-ers say they're planning to use BNPL in 2025. We're watching an entire generation reshape how they approach purchasing.
And it's not just for big purchases anymore, right? People are using it for everyday items like groceries.
Exactly, and here's where it gets really interesting. FICO, the credit score model used by lenders, just announced they're creating new credit scoring models that will include BNPL data. This is huge because until now, these loans have been operating in this credit score blind spot.
Hmm... so what does this mean for all those young consumers who've been using BNPL specifically because it didn't affect their credit?
Well, that's the fascinating part. About 41% of users say they love BNPL because it doesn't impact their credit score. But here's the kicker. The Consumer Financial Protection Bureau found that nearly two-thirds of these loans are going to people with lower credit scores already.
Oh wow, that could be a real problem for some folks, especially considering that 21% of users admit to missing payments.
And that's exactly why this change is so significant. Think about it. many of these young consumers have homeownership aspirations, but a damaged credit score from BNPL missteps could take years to rebuild. It's like this hidden trap that's about to become very visible.
You know what this reminds me of? The early days of credit cards, when people had to learn the hard way about managing revolving credit.
That's such a good parallel. And just like with credit cards, we're likely to see BNPL providers start implementing more robust credit checks. Currently, many do minimal or no checks at all, which is part of what makes them so accessible.
So let me ask you this. could this actually be positive for some users? Like younger consumers or new immigrants trying to build credit?
That's actually a crucial point. For responsible borrowers, this could be a fantastic opportunity. Making regular BNPL payments on time could help boost their credit scores relatively quickly, potentially helping them qualify for better mortgage rates down the line.
Well, that's quite different from how these services started out, isn't it? They're essentially becoming another tool for building credit history.
Exactly, and it's happening alongside other changes in credit scoring, like including rent payments in credit reports. We're seeing this broader shift toward considering different types of payment behaviors in determining creditworthiness.
That makes me wonder about how BNPL providers might adapt their services.
We could see them develop apps to help people track payments across multiple BNPL loans or provide guidance on responsible usage.
Sounds like the whole industry is growing up.
Yes, and more regulated, more transparent BNPL services could help people build credit responsibly while maintaining the convenience that made them popular in the first place.
Looking ahead, what should consumers be watching for?
Well, the key thing to remember is that every financial decision, even splitting a small purchase into a few payments, could now have long-lasting implications for your credit future. It's going to require a significant shift in how people think about these seemingly simple payment options.
That's quite a wake-up call for the buy now, pay later generation.
Indeed, and I think we're going to see a more holistic approach to credit scoring emerge from all this, where various types of payment behaviors contribute to painting a fuller picture of someone's financial responsibility. The future of credit is becoming more inclusive, but also more demanding of consistent, responsible behavior.
That's about all the time we have for this topic, but we go into even more detail on the site. To learn more, go to mortgageresearch.com and type bnpl in the search bar at the top of the homepage. We'll see you next time on the Mortgage Research Network Podcast.