'Little proof' credit builder products are effective: FCA

A new FCA review into credit builder products has found "little evidence" that they are effective for most consumers. 

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

The FCA's review focused on specific credit builder products that simply report regular payments to CRAs with the sole aim of helping customers ‘build’ a credit score or history.  

The regulator found that for most consumers, there is little evidence that these credit builder products significantly improve credit scores. 

Instead, it found a series of 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, the regulator says 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.   

Based on the FCA's feedback, five firms have chosen to stop offering this type of credit builder product. Others have changed their products, business models and marketing materials.  

In a statement to consumers, the FCA said: "There’s little proof that these products will help improve your credit score or make it easier to get affordable credit."