The Financial Conduct Authority (FCA) has suggested there is "little evidence" that certain types of credit builder products are effective for most consumers.

The regulator recently carried out a review to understand how some credit builder products operate and has worked with firms and credit reference agencies (CRAs) to drive improvements in the market.

Furthermore, the review aimed to allow consumers to make informed decisions so they can navigate their financial lives, with credit builder products claiming to help them build a record of making payments.

The FCA said that there is little evidence that these credit builder products significantly improve credit scores. In some cases, firms reporting payments on these products to CRAs potentially misrepresented customers’ financial circumstances and helped facilitate access to unaffordable credit.

The regulator also found that 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 review stated that the majority of the credit builder products that the FCA expanded were unregulated and firms often fail to clearly explain their limitations and risks.

Following the FCA providing its feedback, five firms have stopped offering this type of credit builder product. Others have changed their products, business models and marketing materials.

The regulator said that it will continue to work with firms offering these products as it decides whether it should take further action.

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