Credit scores in the UK – a guide for expats
If you’ve just moved to the UK sooner rather than later you will encounter the concept of credit scores. You need it to rent a house, sign a phone contract, and you could even need it to get a COVID-19 test. Indeed, credit scores in the UK are not just for loans, credit cards or mortgages. Even getting basic services can be difficult if you don’t have a credit score in the UK. This is why it is so important for you to understand how credit scores work in the UK.
Unfortunately, regardless of where you come from, when you move to the UK, your credit score doesn’t come with you. You may have had the best credit report and the highest credit score possible in your home country. But once you arrive in the UK, it’s time to start again.
There are 3 credit reference agencies (CRAs) in the UK. These are Experian, Equifax, and TransUnion. These companies are allowed to collect and hold information on how you manage your financial affairs. This may be from banks, credit cards, mortgages, utility companies, or any other contracts and credit agreements.
When you take any form of credit, the lender will report back to the CRAs. They will share information such as how much you have borrowed and if you are managing your payments. Missing your payments, or making them late will be reported to the CRAs and will harm your credit score. Likewise, payments you make on-time will also be reported and lead to a higher credit score.
When you are seeking credit in the UK, any potential lenders will be able to access the information held by CRAs. This will show the lenders how you have managed your money so far. They will know if you have a history of repaying on time or if you have been struggling to keep up. Credit agencies will also see how much credit you have access to and how much of it you are using. They will take all of this into consideration when deciding if they are willing to lend to you.
The brief version of all of this is that the CRAs will share your information with lenders. Lending money can be risky, and lenders want to mitigate any risk. Your UK credit score and credit report allow lenders to make an informed decision on the risk they take with you. See here more about how your credit score is calculated.
Does it matter if I have no credit history?
In short, yes it does. A poor credit history and a low credit score will make it difficult for you to access credit. Caused by missed and late payments, along with using every penny of credit available to you, a low credit score will make lenders cautious of lending to you.
However, with no credit score in the UK at all, you are not much better off. Lenders can’t see how much risk lending to you entails. If you have no history at all, the lenders would be taking a gamble. With no idea as to how you manage your financial commitments, for many lenders, that risk is too great.
How do I build my credit score in the UK?
Now you know that having no credit history can make life a little difficult. But all is not lost! There are steps that you can take to easily start building your credit history and increase your credit score. You only need to understand how credit scores work in the UK:
Make sure you’re on the electoral roll
Make sure that you are on the electoral roll. This is a vital first step to take to improve your credit score. This shows lenders that you are who you say you are by confirming your name and address. If it comes to changing address, it is important to make sure you update this information.
It may be that you aren’t a citizen of the UK yet and you won’t be able to vote. If that is the case, it is possible to add a notice of correction to your credit report. This is a short term solution until you are eligible to vote.
Open a bank account
Having a bank account can help you build your UK credit score, providing that it is managed well. However, having no credit history can make it difficult to open your first account. You can try banks such as the Cooperative, building societies like Nationwide, or online banks as Starling or Monzo.
When you first open a bank account, it can initially lower your credit score (see here why can your credit score go down). This is only temporary, and in time you will see your UK credit score go up.
Go for small lines of credit
With no credit history and a low credit score, it wouldn’t be smart to make your first application one for £10,000’s. Things like mobile phone contracts and store cards are a good place to start. They don’t tend to be quite so strict with their criteria and allow you to show that you can manage your finances well.
Manage your household bills well
Utility companies can report none payment of bills to the CRAs. Setting up a direct debit can ensure that you are never late with a payment and make sure that you’re not causing any damage to your credit score.
Make your rent count too
If you’re in rented accommodation, you can also make sure that paying your rent on time improves your UK credit score. Signing up to CreditLadder sees your rent payments being reported to the CRAs each month and can give your credit score a boost.
How Wollit can help with your credit score in the UK
Knowing how credit scores work in the UK means that you can be well on your way to building yours and making credit more accessible in the future. If you face the challenges of being self-employed, a freelancer, or being on a zero-hours contract, it can be tough to budget every month and maintain the payments you need to increase your credit score. Our income promise makes this easy and what’s more, being a member sees us reporting to the CRAs and improving your credit score.