Credit Stacking and the New Reality of Consumer Risk: Why Holistic Underwriting Matters More Than Ever

Consumers are increasingly layering multiple credit products at once — buy now, pay later (BNPL) plans, credit cards, small loans — creating a trend known as credit stacking. Driven by rising living costs and frictionless app experiences, borrowers can take on new obligations in seconds, according to Investopedia. That behavior is creating blind spots in traditional underwriting, which usually sees isolated accounts rather than the full borrower profile.

The Rise of Credit Stacking

  • Nearly one in four Americans said they had used a BNPL service in the past year, many holding multiple concurrent loans, according to Investopedia.
  • About sixty-three percent of BNPL borrowers originated multiple simultaneous loans during 2022, and thirty-three percent took out loans from multiple providers, according to the Consumer Financial Protection Bureau.
  • This “phantom debt” distorts borrowers’ debt-to-income ratios and can hinder accurate underwriting, especially when BNPL plans don’t appear on credit reports, according to HUD.

Why Traditional Underwriting Misses the Whole Picture

BNPL loans often are not visible in credit reports, so lenders relying solely on bureau data underestimate borrowers’ liabilities, according to the CFPB. Many BNPL plans run only soft credit checks and auto-deduct repayments, masking consumer strain until it’s too late, according to The Guardian. Traditional models simply do not account for this kind of layered, hidden credit behavior.

Growing Risks for Consumers and Lenders

  • BNPL use for essentials like groceries is rising fast — 25 percent of users report using it for groceries, and 40 percent have missed a payment, according to Investopedia.
  • Late payments are on the rise — forty-one percent of BNPL users said they paid late in the past year, up from thirty-four percent a year earlier, according to LendingTree.
  • Klarna reported a 17-percent year-over-year jump in consumer credit losses in early 2025, underlining deterioration in payment behavior, according to the San Francisco Chronicle.
  • In reported cases like that of one borrower who accumulated $30,000 in BNPL debt on top of $88,000 in credit card debt, the hidden risks of BNPL stacking become painfully clear, according to The Guardian.

Why Holistic Underwriting Is the Answer

Holistic underwriting provides a stronger way forward by addressing the gaps traditional methods often miss. For example, firms like Equifax and Qlarifi are increasingly studying alternative data sources, such as BNPL activity, to detect signs of financial stress and stacking behavior (PR Newswire). As BNPL volumes climb into the hundreds of billions globally, AI-driven underwriting plays a critical role in delivering real-time, adaptive risk assessment that keeps pace with changing borrower behaviors (TrustDecision). When lenders combine and analyze data in real time, they can prevent overextension, extend credit responsibly, and broaden access to underserved populations, as highlighted in recent Equifax research. This approach creates a fairer and more resilient credit ecosystem.

What This Means for Lenders

Credit stacking can significantly increase the risk of defaults and bad debt for lenders. When borrowers carry multiple, often invisible obligations — from BNPL plans to credit cards and small loans — traditional underwriting models may underestimate their true financial exposure. This may contribute to higher charge-offs, increased collection costs, less precise risk-based pricing, and even regulatory scrutiny if material liabilities are overlooked. Lenders who fail to account for these hidden debts risk eroding portfolio profitability and investor confidence.

How Bloom is Mitigating this Risk

BloomGrade™ is designed to help address these challenges by leveraging real-time behavioral and alternative data sources to develop a more comprehensive view of borrower creditworthiness. Using proprietary models developed over years of available historical and real-time lending data, BloomGrade evaluates a wide range of indicators beyond conventional credit scores. A dedicated team of qualified data scientists continuously refines these models, ensuring that each score reflects both default risk and borrower potential.

Rather than relying solely on static snapshots, BloomGrade synthesizes multiple data streams to provide a dynamic, comprehensive assessment of every borrower. This approach may help lenders better identify potential risk factors, enhance risk-based pricing strategies, and support more informed lending decisions. By highlighting both risk and opportunity, BloomGrade is designed to help lenders make more informed portfolio decisions while supporting broader access to credit.

Conclusion

Credit stacking is more than a trend. It’s a fundamental shift in consumer borrowing behavior. The rise of BNPL and concurrent obligations shows that traditional underwriting based solely on static scores is no longer adequate. By adopting a holistic, dynamic, AI-powered solution such as BloomGrade, lenders can accurately understand and better serve today’s borrowers.

Disclaimer: BloomGrade is designed as a decision-support tool. Performance outcomes may vary based on implementation, portfolio characteristics, market conditions, and other factors. Lenders are responsible for their own credit decisions and regulatory compliance. This content is for informational purposes only and does not constitute legal, regulatory, or investment advice.