Tag: debt charity

FINANCIAL CONDUCT AUTHORITY REVIEW PUBLISHED

The Financial Conduct Authority’s review of certain types of credit builder products found little evidence that they are effective for most consumers.

FCA want consumers to be able to make informed decisions so that they can navigate their financial lives.

That’s why we carried out work to understand how some credit builder products operate and have been working with firms and credit reference agencies (CRAs) to drive improvements in the market.

Here we explain the work we’ve done, and where consumers can access useful information on improving credit profiles, such as via MoneyHelperLink (external)

What we looked at

Credit builder products claim to help you build a record of making payments, which could improve your credit history and score.

Our review focused on specific credit builder products that simply report your regular payments to CRAs with the sole aim of helping you ‘build’ your credit score or history.  

These products typically do not involve regulated credit. But because they are closely linked to the wider credit market and tend to be marketed to people who have little or no credit history, we looked at how they affect consumers.

We didn’t look at other products or features often described as credit builders like low-limit credit cards, rent reporting services, or services which simply explain how your credit file works.

Our key findings

• Effectiveness: For most consumers, there is little evidence that these credit builder products significantly improve credit scores.  
• Potential risks: In some cases, firms reporting payments on these products to CRAs can potentially misrepresent a customer’s financial circumstances and help facilitate access to unaffordable credit. For consumers experiencing financial difficulty, these products are even less likely to positively affect credit scores and may reduce the amount of income available for essential living expenses.  
• Complexity and regulation: The majority of the credit builder products we looked at are unregulated and firms often fail to clearly explain their limitations and risks.  

Our work

Based on our feedback, 5 firms have chosen to stop offering this type of credit builder product. Others have changed their products, business models and marketing materials.

We continue to work with firms offering these products as we decide whether we should take further action.

We’ve engaged with CRAs on new data reporting guidance to ensure that only appropriate information is reported that accurately reflects repayment performance.

What to consider as a consumer

There’s little proof that these products will help improve your credit score or make it easier to get affordable credit.

Think carefully about whether these products fit your needs and are worth the cost.

For more information on improving your credit profile, like tips on low-limit credit cards, or for free debt advice if you’re having money problems, visit:

 MoneyHelperLink is external.

StepChange has welcomed the Financial Conduct Authority’s (FCA) review into credit builder products, and the harm that they can cause to consumers, particularly if they are struggling with debt.

Peter Tutton, Director of Policy, Research and Public Affairs at StepChange, said: “We welcome the FCA’s new review into credit builder products.

People who have a poor credit history or are new to credit may choose to use these products explicitly to build their credit score. Advertising of these types of products can exaggerate the benefits of having a good credit score, and lead consumers to believe it will help them get access to credit or other financial services.

“Our research finds people in financial difficulty delay seeking help because of worries about their credit scores – almost half (45%) of people finding it difficult to keep up with credit repayments were offered more credit. This increases harm and makes debt problems worse.  

“The reality is that credit scores are only one element of what lenders look at when assessing credit worthiness. We support the FCA’s wider work as part of the Credit Information Market Study that lenders should report forbearance arrangements more positively which would make people more confident to get better and earlier help with their debts.

“We need to ensure the credit information system is not used to push people further into harmful debt.”