FCA issues warning over credit builder products

New Financial Conduct Authority (FCA) research has warned that people should review and avoid using certain credit builder products.

The review looked into credit builder products and the harm that they can cause to consumers, particularly if they are struggling with debt. Credit builder products claim to help people build a record of making payments, which could improve credit history and score.

The FCA review focused on specific credit builder products that simply report regular payments to Credit Reference Agencies (CRAs) with the sole aim of helping ‘build’ your credit score or history. These products typically do not involve regulated credit. They are closely linked to the wider credit market and tend to be marketed to people who have little or no credit history, so we looked at how they affect consumers. 

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.   The majority of the credit builder products the FCA looked at are unregulated and firms often fail to clearly explain their limitations and risks.  

Alison Walters, Director of Consumer Finance at the FCA, said “We urge people to think twice before paying to use products that claim to boost your credit score. We found that certain types of credit building products don’t always deliver on their promises and there are usually better, more cost-effective ways to build up your credit, and get free and impartial guidance such as from MoneyHelper.”

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.”