Affirm Launches New Underwriting Model for U.S. Shoppers

Affirm has launched a new underwriting model for U.S. checkout loans, built to distinguish between borrowers recovering from past financial trouble and those just starting to struggle. The model uses transformer technology to analyze the order and timing of a customer's credit events over Affirm's 14-year lending history.

Affirm President Libor Michalek explained the shift to PYMNTS CEO Karen Webster. "The time dimension of multiple purchases, multiple credit events in a customer’s life wasn’t being represented with particularly high fidelity," he said. Older models counted events but struggled with chronology and subsequent behavior, often declining applicants who could now be approved.

Thin Files Have the Most to Gain

Michalek said consumers with sparse credit histories stand to benefit the most. The model combines credit bureau records, Affirm's internal data, and user-shared cash flow information. "Where before two very different users could look the same because of that sparseness of data, we’re really able to tease them apart," he stated.

For consumers with some credit report data but no FICO score, the new model improved Affirm's ability to rank first-payment default risk by about 2.1 times compared to the prior model's next version. Michalek clarified this metric measures risk-sorting precision, not a direct doubling of approvals. Affirm will continue reporting repayment behavior to credit bureaus.

A Spending Limit Changes the Conversation

The update coincides with a shift in how customers use Affirm's pay-later service for everyday expenses like groceries and car repairs. This everyday use requires the model to assess how a new payment fits with a customer's existing obligations. The Affirm Card exemplifies this, presenting users with a spending limit and various payment plan options instead of a simple credit line.

The underwriting model sets the guardrails for spending, and a customer's repayment behavior can lead to an increased spending limit. Michalek said success will be measured through approvals, delinquencies, customer growth, and usage, visible in quarterly results. An immediate test will be the upcoming holiday season, with its concentrated spending and subsequent payment due dates.

Every purchase and repayment teaches the model more about the customer, aiming to make Affirm a top payment choice. The model's first task was re-evaluating applicants declined by the old system; it will now handle all new user underwriting.