An app called Bits is aimed at those with a limited credit history and is designed to boost an Experian score through a monthly fee
It is often considered something of a catch-22 that in order to make yourself eligible for credit you must first take out credit.
There are often stories about ‘mortgage invisibles’, people who have always managed their finances perfectly well but because they have never had a credit card or a track record of borrowing anything, lenders can’t trust them to pay back a mortgage because there is no data.
There are some ways of improving your credit score without taking on debt, including registering to vote, paying your mobile phone bill and keeping up with your rent, but often it comes down to being accepted for a credit card, and possibly one with a higher interest rate if it’s your first one.
While that doesn’t matter if you only spend small on it and always pay it in time and in full, there is an app out there which thinks this situation is a bit strange.
It is called Bits and is intended to build up your Experian credit score using a monthly fee closer to a subscription service than a credit card.
In fact, although it describes itself as a ‘digital credit-builder credit card’, you can’t use it to buy things.
Founder Faisal Khalid told This is Money: ‘We founded Bits because we thought it strange that consumer finance experts were recommending to take out credit builder credit cards, to help build your credit score, while in fact these cards were, and still are, inaccessible to those who need them most.’
How does Bits work?
This isn’t the equivalent of your Netflix or Spotify subscription boosting your credit score, however, it is still lending, just done differently.
A monthly subscription fee of between £2 and £20 a month, depending on the ‘credit limit’ you choose, is lent to you over a period of years, and you pay that off.
You can cancel whenever you want to, because your outstanding balance is always £0 at the end of each month, provided you’ve made the payment.
How Bits works. Users can cancel any time, as you are paying a subscription fee. This means you don’t owe anything after each monthly payment
In the example on its website, it uses a £720 ‘credit limit’ on the Bits digital credit card, this is paid off over three years at a rate of £20 a month. This three year timescale is the case regardless of which plan you choose.
Bits pockets the £2-20 a month – in return, users should in theory boost their credit scores, and the firm says this could result in cheaper borrowing in the future.
Because it is a pre-arranged monthly subscription fee, the argument is, Faisal said, that it ‘wouldn’t get you into debt, and that would be accessible to anyone’, but would still help build credit.
The app also includes weekly credit tips, one-to-one conversations with its founder about building credit, and access to podcasts.
The app can be downloaded on Android and Apple and takes roughly between 8-10 weeks to appear on your Experian credit file. It requires only your name, date of birth, address and email address to sign up.
Faisal told This is Money that those who had signed up to Bits – there are 34,000 people signed up to the company’s mailing list but not all of those are on monthly plans – had seen their credit score improve by between 50 and 200+ points.
Subscription plans cost between £2 and £20 a month, and Bits say the more you can afford to pay the better an effect it has on your credit score
What should you be aware of?
But while Experian is the largest of the big three credit reference agencies, Bits does not yet report to either Equifax or TransUnion, which means lenders that use the data collected by those agencies will not see that you have kept up the payments on this app.
It is also worth noting missed payments affect your credit score, like a standard credit card. But remember you can quit the service without cost if you prefer.
And, it admits its monthly payment is higher than a credit card minimum payment, although a credit card minimum payment sees you charged interest which this does not.
Andrew Hagger, the founder of personal finance site Moneycomms, said the non-reporting to Equifax was ‘a fairly big omission if you’re supposedly helping people to build their credit score.’
He added: ‘I don’t see any benefit to using this card over something like an Aqua credit builder type card.’
Smartphone-only bank Tandem’s Journey credit card, for example, aimed at those with lower scores or thinner credit files, comes with a minimum payment of either interest and fees and 1 per cent of the balance, or £5 a month, whichever is higher.
But that is obviously a card on which you can spend things, and it comes with a potential maximum credit limit of £1,500.
And finally, Bits is not regulated by the Financial Conduct Authority. It was covered as a representative of Modulr FS between August 2019 and April this year, but aside from that period it has not been covered despite having been around since 2018.
We asked the app about this, and it told us: ‘A previous product we released required EMD authorisation which we secured via Modulr Finance. When we moved to the new version of Bits, we didn’t require the services Modulr provided us.
‘Bits are fully compliant with all FCA rules and regulations.’
Source: Daily Mail – Articles
