With household debt rising and delinquencies starting to pick up, consumers are increasingly turning to non-traditional credit-building products to boost their credit scores. However, the 2024 Credit Builder Study released today by the personal-finance website WalletHub revealed that many of these products rely on shady tactics that may end up doing a disservice to users and threatening the credit system more broadly.
WalletHub evaluated 22 of the most popular credit building products available right now, given that some of them are just debit cards masquerading as credit cards while others only send positive information to your credit report.
Key Findings
- 27% of credit-building products do not provide an actual loan or line of credit that gives customers access to usable funds.
- 23% of major credit-building services never report negative information to the credit bureaus, while 18% report negative information but allow it to be gamed.
- 27% of major credit-building products improve the user’s credit utilization rate by reporting false information, such as reporting an inflated credit limit to the bureaus.
- The best credit-builder products are the Self Credit Builder Account, Digital Federal Credit Union Credit Builder Loan, Alltru Credit Union Credit Builder Loan, Sunrise Banks Credit Builder Loan, USAlliance Credit Builder Loan, and Cheese Credit Builder.
“Credit scores measure how risky it is to lend people money, based on how responsibly they’ve managed legitimate financial obligations in the past. These scores are useful because they reflect the good, the bad and everything in between from people’s experiences borrowing money via loans and lines of credit. If you miss payments, for example, your credit score should suffer. But that’s not the case with many of the newest credit-building products to hit the market.”“Some of the shadiest credit-builder products are debit-based and have no connection to credit other than reporting information to the credit bureaus. Others manipulate the reporting process so only positive information finds its way to your credit report. Getting credit where none is warranted might sound pretty good to some people, but you’re doing yourself a disservice by drinking this Kool-Aid. It is easy to fall into bad habits and enjoy a false sense of security with this type of risk-free credit building.”
- John Kiernan, WalletHub Editor
“Many questionable credit-building products have hit the market in recent months. Some of them are debit cards masquerading as credit cards, while others only report positive information. Regulators have a real problem on their hands, and it seems like they don’t even realize it. By allowing these products, regulators are hurting lenders by tricking them into extending credit to people they shouldn’t, and they’re hurting consumers by enabling them to overextend. Meanwhile, large, sophisticated lenders are excluding these questionable tradelines from their proprietary credit scores, leaving small and midsize lenders exposed. These types of tactics undermine the entire credit system, and they should stop.”- Odysseas Papdimitriou, WalletHub CEO
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