Credit Repair Organisations - Will They ‘Kill' or ‘Cure'?

Credit repair / credit builder companies help consumers improve their credit score to access more borrowing and financial services. Do they succeed and are these practices morally OK? Will the Financial Conduct Authority (FCA) continue to critically review these firms and how many more will be required to clean their act up or cease operations?

The sort of ’tricks’ used by credit repair companies ….. 

· A consumer must pay, say £200, into an account with a 'credit repair’ company, who will immediately lend the same sum back to the consumer. Consequently, no money transfer, and no credit is provided. 

· The consumer makes ‘repayments’ up to the total amount agreed - maybe including some fees (e.g. 12 months x £20 to repay £200 that was not really lent).

· The money (£200) is returned to the consumer net of the fees. 

· 'Review and repeat' as necessary. 

· All payments are reported to the credit reference agencies, to make this look like a real loan and then real repayments. 

But…….. this is not consumer credit at all. No-one really lends money to the consumer, and no real ‘loan repayments' are made. This scenario is a savings account with big fees and some ‘interesting’ legerdemain with the ledger.  This means that:

a) Consumer credit bureaux and lenders are misled with loan and repayment data from the credit repair firms that mislead the wider credit system.

b) Credit repair firms announce relationships with large UK financial service providers

c) Not all credit repair firms are regulated for ‘loans' or to accept deposits - so the money and consumers are not protected.

d) Vulnerable consumers are misled to believe that they've ‘earned’ an improved credit rating, when it may actually become worse; and they have had to pay for this service. 

The credit reference agencies are wise to this, so they do not let them influence credit scores. This means that the consumers may feel cheated because they also have to pay the credit repair firm for the failed service. The rhetoric from credit repair businesses is wrong, costly, without the benefits for consumers, and may even make credit scores worse.

People who want to improve their scores should refer to the UK government moneyhelper.org.uk website for free real and impartial advice to help them.  

More great news is that the FCA earlier this month reported that its recent investigations founded at least five credit repair firms that have now stopped operating these products and found others that have amended their products and marketing efforts. 

The whole credit industry needs to 'up its game’ too. It needs to find ways to help rehabilitate customers with no or poor credit history rather than let consumers carry permanent ‘bad or questionable credit risks’ and be used by credit repair firms.

Most credit repair firms offer a superficial service that ‘do not help’ the people that they purport to help. Let’s ’stamp out' this type of practices find more appropriate and sustainable ‘cure' the underlying problem.

Kevin Smith and Bill Trueman are directors at Riskskill, and are payments and risk specialists, with over 30 years of experience. For more information about Riskskill visit website at www.riskskill.com