The U.S. Department of Housing & Development (HUD) is investigating how Buy Now, Pay Later (BNPL) products impact a borrowers’ ability to meet housing-related expenses, including rent or mortgage payments. BNPL loans allow shoppers to divide a purchase into payment installments.
Data gathered in response to HUD’s Request for Information (RFI) will inform HUD’s efforts to ensure that FHA single-family mortgage insurance (MI) policies effectively address the evolving financial landscape and support the needs of American households.
Through the RFI, HUD wants to how BNPL obligations may affect the ability of FHA lenders to accurately assess risk, the impact of BNPL lending on housing affordability and stability, and whether policy changes are needed to preserve sound mortgage underwriting standards.
Consumer adoption of BNPL financing is rapidly growing and changing how individuals manage short-term expenses. According to a January 2025 report from the Consumer Financial Protection Bureau (CFPB), 21% of consumers with a credit record financed at least one purchase using a BNPL product from a major provider in 2022. Many of these consumers are “heavy users” of BNPL products, with more than 60% of them having multiple simultaneous BNPL loans in 2022.
This elevated credit utilization may reflect constrained liquidity that could impact qualifying ratios and risk layering in mortgage underwriting, which is of particular concern because most BNPL obligations are not reported to credit bureaus. BNPL loans essentially create “phantom debt” that mortgage lenders may not be readily able to detect as needed to fully assess a borrower’s outstanding obligations or debt management behavior.
HUD is welcoming all comments relevant to BNPL loans and their impact on housing affordability and stability, including but not limited to:
- Evaluation methods used by mortgage lenders and underwriters to identify BNPL obligations.
- Risk assessment and loan approval challenges faced by underwriters when considering borrowers with BNPL debt.
- Debt-to-income (DTI) calculations are used in mortgage eligibility, especially when obligations are not visible in credit reports.
- Recommended policy measures to ensure that BNPL obligations are appropriately considered in DTI calculations without imposing undue burdens on borrowers or lenders.
According to HUD, “BNPL loans essentially create ‘phantom debt’ that mortgage lenders may not be readily able to detect when needed to fully assess a borrower’s outstanding obligations or debt management behavior.”
According to law firm Ballard Spahr, HUD said that FHA’s policies would largely exclude BNPL loans from consideration in underwriting because closed-end debts are not required to be included if they will be paid off within 10 months from the date of closing, and the cumulative payments of all such debts are less than or equal to 5% of the borrower’s gross monthly income.
In measuring the impact of BNPL products on credit, global analytics software provider FICO recently announced the launch of FICO Score 10 BNPL and FICO Score 10 T BNPL, the first credit scores to incorporate BNPL data. These innovative scores, developed by FICO from data-driven research, represent a significant advancement in credit scoring, accounting for the growing importance of BNPL loans in the U.S. credit ecosystem.
“Buy Now, Pay Later loans are playing an increasingly important role in consumers’ financial lives,” said Julie May, VP and General Manager of B2B Scores at FICO. “By expanding our FICO Score 10 Suite with new models designed to incorporate BNPL data, we’re enabling lenders to more accurately evaluate credit readiness, especially for consumers whose first credit experience is through BNPL products. This innovation also supports our mission to expand financial inclusion by helping more consumers gain access to credit.”
FICO Score 10 BNPL and FICO Score 10 T BNPL were developed to harness the benefits offered by the incorporation of consumers’ BNPL data into calculation. FICO’s year-long joint study on BNPL data confirmed that a unique consumer behavior associated with BNPL loans is the potential for a large number of these loans to be opened within a short period of time. To address this, FICO developed an approach that includes aggregating separate BNPL loans together when calculating certain in-model variables. This novel treatment has proven effective at capturing predictive signal from the inclusion of BNPL data while increasing FICO Scores for some BNPL borrowers.
“Our clients tell us that FICO’s initiative to include BNPL data in credit scoring is a progressive step that acknowledges the evolving landscape of consumer financing,” added May. “By capturing a broader view of consumer credit behavior, lenders believe they can make more informed decisions, ultimately benefiting both the industry and consumers.”
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