The Credit Score Rules Just Changed

Becca HartwellOkay, so real talk before we do anything else. Uh-oh. Episode one of this show, I said, and I quote myself, which is embarrassing, "We're gonna break down exactly how your credit score gets calculated." You did say that. 15 episodes ago, Maya. 15. We've done rate hikes, we've done tax season, we've done I don't even remember what else, and the actual credit score episode just never happened. Okay, but in our defense, the topic's kind of a nightmare. Like, what even is my score measuring? Nobody explains that part. Right. It's not like a report card where you know what the grades mean. It's a mystery number a computer somewhere decides about you. Very ominous. So today we're finally doing it? Today we're finally doing it, and it's good timing, honestly, because there's two things happening right now that make the old explanation kind of obsolete. Okay, hit me. Question one, does using something like Klarna or Afterpay actually show up on your credit report now? Wait, does it? Not answering that yet. Rude. Question two, are lenders actually pulling new scoring models yet, or is that still just a headline? Okay, that one I genuinely don't know. Same energy for most people. Don't worry. So where do we even start with this? We start with the score you think you have versus the one a lender's about to pull. Okay, so here's the split screen nobody talks about, the score you think you have and the score a lender's about to pull, and they are not the same number anymore. Wait, that's not just a mood thing? That's an actual gap? There's an old piece I dug up. Vintage is fuzzy, so don't quote me on the year, but it found the average FICO had dipped to seven fourteen, second year it fell. Huh. And at the same time, almost half of Americans, forty-eight point one percent, were sitting at seven fifty or higher. So one group's cruising, and the other's stuck in traffic. And it's not just bragging rights. That gap follows you into everything you borrow. Someone parked at seven fifty gets handed the best rate on the table, no questions asked. Someone sitting lower pays more every single month for the exact loan. So it's not vibes, it's actual dollars leaving your pocket every month for years. Basically, credit's splitting into people with a fat file the bank loves and people the models barely have data on. Which, okay, thin file, that's a phrase we throw around. What does that mean for a real person? Picture somebody with maybe one credit card, a balance they're chipping away at every month, and then- A few Klarna payments sitting off to the side that they don't even think of as debt. Right, because in their head it's not a loan. It's just how you buy the jacket. That's our listener today, thin file, one card, couple installment plans. And that exact combination is where both of these shifts land hardest, the BNPL question and the scoring model question. And honestly, that's most people I know. Nobody I hang out with has some pristine, spotless file. It's always a card, a balance they're working on, and a couple little apps in the background they don't even clock as debt. Right. It's not some fringe edge case we made up for the show. That's basically the default starter pack for adult credit right now, and it's exactly why both of these shifts matter so much. Which brings me to the thing I actually want answered. Go. Does the Klarna plan even count toward anything? Like, is a lender looking at that and going, "Huh, interesting," or is it just invisible? Oh, you are gonna wanna sit down for this one. I'm sitting. Go. Ugh, so Klarna, does it even count? Okay, so get this, it depends entirely on which app is sitting on your phone. That's not an answer, Becca. It's the actual answer. FICO announced back in June of twenty twenty-five that they built two new scores for it, FICO Score 10 BNPL and FICO Score 10T BNPL. Wait, they built a whole separate score for it? Yeah, aimed at people whose first real credit experience is a pay-in-four plan instead of a credit card. So somebody with zero credit history could get scored off their Klarna order? Basically. But, and this is the part nobody tells you, that's a separate model. model. Your regular FICO score sitting with your bank isn't using it yet. Wait, so does that mean if I've never had a credit card but I've got a Klarna history, I could actually get approved for something because of the BNPL score? That's the whole point of it. It's built for exactly that person, someone whose first real credit footprint is a pay-in-four plan instead of a credit card. Okay, so what about the actual reporting? Like, does the plan show up as a line item? For Affirm, yes. Starting April first of twenty twenty-five, Affirm started sending all of its pay overtime products, including the pay-in-four plans, over to Experian. Every one of them, even the little four payment ones? Every single one. But here's the catch, Experian's got the data, and it's still not factored into the traditional score that gets pulled. So it's like a ghost entry. The data exists, the bureau's holding it, but no score cares yet. Pretty much. It's built, it's collected, it's just not wired into the machine that spits out the number lenders actually pull. So it's sitting there just waiting? Kind of, yeah. And it gets messier. Affirm only reports to Experian, not TransUnion, not Equifax. Seriously? So if a lender pulls TransUnion instead, it never sees it. And Afterpay doesn't report to any bureau at all as of twenty twenty-six. None? Not even one? None. So if you're the listener with the Klarna installments, whether that shows up depends on which bureau your lender checks and which app you actually used. That's wild. Same behavior, three completely different apps, three completely different outcomes on paper. Exactly. It's not a blanket rule. It's provider by provider. Okay, so bottom line for anyone panicking right now, check your specific app instead of assuming either way. Exactly. Don't guess. The provider name on your screen is the actual answer here, not some blanket rule about BNPL in general. Okay, first mystery solved, sort of. Sort of, but that's actually the smaller shift. There's a bigger one? There's a bigger one. This is the one that's going to reshape how mortgage lenders look at every applicant, BNPL or not. Okay, now you have my attention. So the mortgage side, this is the one that actually matters for anyone buying a house this year. Wait, is it happening or not? Because last time we talked about this, it was all someday. It's happening. FHFA's own policy page, updated back in May, says VantageScore 4.0 is already being adopted by approved lenders for Fannie Mae and Freddie Mac loans. Wait, already? Like right now, today? Right now. But FICO 10T, the other new model everyone talks about, is a different timeline. That page says historical FICO 10T scores are expected to publish in summer 2026. So one model's live, and the other's still on the runway. Exactly. Lender adoption for FICO 10T follows after that publishing date, so it's not both models flipping on at once. Okay, that's the staged part you mentioned. That's the staged part. Okay, wait, staged how exactly? Like, everybody's using the old model until one specific day it flips? No, more like a rolling switch. Some approved lenders already have VantageScore 4.0 live, and FICO 10T is queued up behind it once the historical scores are actually published. And you said there was a name attached to this, a regulator pushing it further. Yeah. Scotsman Guide reported within the last few days that FHFA Director Pulte directed Fannie Mae and Freddie Mac to open VantageScore 4.0 to all lenders, not just the approved ones. All lenders. So this isn't a pilot program anymore. It's bigger than a pilot. That same reporting says VantageScore has already captured over 9% of GSE mortgage securitizations since the rollout started in May. 9% doesn't sound huge. Picture it differently. That's roughly one in 11 mortgages the government backs is already getting scored on the new model. So it's not some tiny experimental slice. That's a real chunk of the mortgage market already on the new model. Right. And remember, that's just since the rollout started in May. The share only grows from here if the direction from FHFA holds. Okay, that lands. And FICO 10T? FICO 10T's still figuring out its role. The reporting says how FICO 10T fits into a combined approach with VantageScore is unresolved. So nobody's actually announced the final answer. Nobody has, which is the honest version of this. It's in progress. Not a rumor, not fully arrived either. Right. If you're applying for a mortgage in the next year, there's a real chance the lender pulls a score you've never seen calculated before. That's unsettling. It's not universal yet, but it's not hypothetical anymore, and that's the shift. Okay, wait. Pulte is directing this because he wants it faster? That's what the reporting suggests, pushing adoption past just the approved lender list. Huh. Yeah. And that's the part that actually changes the calendar for people, right? Because a directive from the top moves faster than waiting on individual lenders to opt in one by one. Exactly. It turns a slow trickle into something closer to a mandate, at least for the lenders working with Fannie and Freddie. So somebody with a thin file or somebody carrying a balance they're paying down, their old score might not be the one that gets pulled. Depends on the lender and the loan, but yes, it's a live possibility now. Which brings up the actual question I've been sitting on this whole segment. Go for it. Everyone keeps saying these new models look at trended data instead of a snapshot. What does that even look at? Now we're getting somewhere. Show me. Sure. So trended data, what's it actually looking at? Because snapshot I get. That's just your balance today. Right. A snapshot is one photo. Trended data is more like watching the whole month-by-month movie. FICO 10T and VantageScore 4.0 both pull up to two years of your payment history, not just where you landed this billing cycle. Two years. That's a while. It is, and that changes who looks good on paper. How so? Say two people both owe $4,000 on a card right now, today, this second. Same balance, same score under the old model. Exactly. Same snapshot. But one of them owed $7,000 eight months ago and has been grinding it down every month. The other one's been sitting at $4,000 the whole time or climbing toward it. So the shrinking balance person gets rewarded even though the number today is identical. That's the idea. The trend line shows discipline the snapshot can't see. Huh. That actually makes sense as a fairer read. There's an explainer that walked through this. It confirmed the mortgage industry has actually signed off on both of these models now, and it framed the whole shift as a double-edged thing. It can help you. Or? Or hurt you, depending on your history. If you've been racking up balances instead of paying down, that same two-year window is now working against you instead of for you. So it's not automatically good news. No. It just sees more of the real story, good or bad. So the lazy version of me from last spring is haunting my mortgage application. Kind of, yeah. Great. But think about what that means for someone who's actually doing the work. Like our listener from the top. Right. One card, chipping the balance down, plus a couple of Klarna installments in the mix. Under the old single snapshot model, all a lender sees is a thin file and today's number. Not much of a story to tell. Under trended data, if those bureau reports catch it, a lender could actually see the balance shrinking over time. That downward line is worth something now, even with a thin file. So the Klarna piece and the pay down piece aren't separate anymore. They're both feeding the same two-year picture. That's exactly it. One's whether it shows up at all, the other's whether the pattern behind it looks good once it does. Okay, so let's actually put a face on this. Our listener, thin file, couple Klarna payments a month, one credit card balance she's been knocking down for a while now. Right. The one we set up back at the top. That one. So what does a lender actually see when they pull her file under one of these newer models? They see more than she thinks. That's the part people miss. Wait, more how? She's probably assuming the Klarna stuff is basically invisible, like it's happening in some app, not on her actual credit file. Which, depending on the provider, sometimes it is. Sure. But if any of it's landing on a bureau through Affirm, say, it's not invisible anymore. It's a line item with a payment history attached. And she's also treating the card balance like the whole story. It went from four hundred to three fifty to three hundred. She feels good. That's the win. That's mistake number one, basically, thinking the ending balance is the grade. Under a model reading two years back, the grade includes how she got there. Oh, so it's not just, "Did you pay it down?" It's, "Did you pay it down like clockwork?" Exactly. Steady, on time, every month, that pattern is doing work a single balance never could. Okay, but be honest with me. Does that actually help someone with a thin file, or does thin just mean thin no matter what? It can help. Not save her overnight, not turn her into an eight hundred by spring, but a short history of boring, consistent, on-time payments reads better under trended data than it used to. Because there's finally a trend to read. Right. A snapshot can't tell discipline from luck. A pattern can. Okay, so walk me through the flip side of that, though. What if someone's file shows a big balance spike right before it started coming down? Does that history hurt her even after she's fixed it? It's part of the picture, sure, but it's not a life sentence. A spike followed by months of steady pay down still reads as a turnaround, not just a red flag sitting there forever. I feel like I've been personally victimized by exactly one late payment three years ago. See? And that's the flip side. One bad month sitting alone doesn't get buried the way it might in an older model. It's part of the story, too. So no magic fix, just keep doing the boring thing. Pretty much, and don't assume a buy now, pay later plan is some secret side account. Treat it like it might show up, because for a growing number of people, it will. What about somebody who's never used buy now, pay later at all? Does skipping it entirely help or hurt under these new models? Neither, really. It just means there's less trend to read either way. It's not a black mark to not have it. It's just one less data point painting the picture. All right, so what's she supposed to walk away and actually do about any of this? That's the real question this week. Don't just leave her hanging, Maya. I'm not. I've got the one move, but it's worth its own minute. Fair. So what's the one thing listeners should actually go do? Okay, so here's the actual homework. Two things, one for everybody, one for the mortgage folks. Give it to me straight, Maya. Thing one, go pull up whatever BNPL app you're using and just check the fine print for who they report to. Like, actually open the app? Actually open the app. Takes two minutes. You'll know instantly whether that plan's invisible or sitting on your file. And if it turns out your app doesn't report anywhere, like Afterpay, does that mean you're off the hook, nothing to worry about? Kind of, for now. But don't get too comfortable, because reporting practices are clearly moving in one direction. Today's ghost entry could be tomorrow's line item. And if you're one of those people eyeing a house in the next year- Then thing two, ask your loan officer flat out which scoring model they're pulling. Just ask them? Just ask them. Most people never do, and it changes what advice even applies to you. And if they don't know the answer off the top of their head- Then that's actually useful information, too. It tells you they might not be thinking about it either, which is exactly why you ask. Okay, wait. Say that back to me in one line each, because my brain's been marinating in acronyms for twenty minutes. Fair. BNPL showing up depends entirely on your provider. No universal answer. And the mortgage models? Rolling out, real, but not everywhere. Some lenders are there, some aren't yet. So depending on where somebody lives or which bank they use, they could be getting a totally different scoring experience right now. Completely different experience, same country, same year, which is exactly why asking the actual question beats assuming anything. I feel like we just did a whole semester in two sentences. That's the goal. Compress the confusing stuff, keep the two things you actually do. Check who your BNPL reports to. Ask your lender which model they use. Love it. Short. Mean it. Done. Done. All right, Becca, I think that's our show. That's our show. Thank you guys so much for hanging out. Go check your apps, go bug your loan officer, and we'll catch you next time. Bye, everybody. Okay, quick breath. This week, check which bureau your BNPL provider actually reports to, and if you've got installment plans, keep them boring and on time for the next two years because that's the window these new models are reading. And if a friend texts you confused about why their score moved and they have no idea what changed- Send them this episode ... seriously, that's the whole ask. Hit follow, share it with the one person who always asks you about their credit score at parties. There's always one. There's always one. We drop new episodes every Tuesday. Speaking of things we promised and never explained- Oh, we've got a list ... next week. Next week, we're finally doing why your insurance premium went up when you didn't file a single claim. Ugh, that one's personal for me. I know. See you Tuesday.