If you’ve recently moved to the UK, thinking of ways to build credit probably isn’t top of your priority list. However, to be accepted for most forms of borrowing in the UK, you must have a good credit history and credit score.
Not only will your credit score affect whether or not you are approved to borrow, it will also influence the rate of interest and the APR you’re charged, and the amount you can borrow.
Newcomers to the UK have no credit history
When you arrive in the UK, you won’t have a credit report and lenders will probably see you as a ‘high risk’ borrower as they don’t have any information on your past financial habits. They do not, therefore, know if you’re likely to make regular repayments.
It’s never too soon to start establishing your credit in the UK, and the sooner you do, the better prepared you will be for when you do want to access credit. A good credit score can open doors to all kinds of financial products which can help with essential purchases like housing, utilities and transport:
- Mortgages – with a poor credit score you won’t get accepted. It’s too big of a risk for lenders to take.
- Credit cards – you might get approved with a poor credit score but it will be at exorbitant interest rates.
- Personal or car loans
- Utility bills
- Mobile phones
- Car and home insurance – if you want to pay for insurance in monthly instalments, the insurer is loaning you the balance over the course of the year and will, most likely, charge you interest. They will run a credit check to see if you’re likely to make all of the payments and if your credit score is poor, they may not allow you to pay in instalments and require up-front, full-year payments.
Your credit score in your home country
In the UK your credit score is generated by three main credit reference agencies: Equifax, Experian or TransUnion. While each has different score categories, and your score may be different between agencies, they all use the same factors that determine what makes up a good credit score. Among other things, they look at how much credit you have access to and how much of it you’re using (credit utilisation rate) and whether you’re making regular payments on bills or loans (positive credit history).
The UK credit reference agencies only collect credit information from the UK. If you’ve come from a country where you’ve built up a great credit score, unfortunately your credit score, history and report cannot transfer across countries. Offer a copy of your non-UK report to UK lenders, as it may help with your application.
On the other hand, if you had a poor credit score in another country, your move to the UK can be a chance to start fresh. Learn new, more responsible spending behaviours that won’t get you into the same trouble as before.
It’s never too soon to start building your credit
As a newcomer to the UK, there are several ways to build credit starting today:
1. Establish yourself as soon as possible
Find employment as soon as you can. If possible, try and find work in the UK before you leave your home country. A job will not only provide you with a regular income, but will also show lenders that you can afford to pay back your loan. Have your income paid into a UK bank account.
2. Open and manage a UK bank account
Check to see if the bank that you have an account within your home country also has branches in the UK. This will make it easier when opening a new account. If not, you’ll need to fill in an application form and valid photo identification (e.g. your passport) into the branch with you. You will also be asked for proof of address such as a recent utility bill, so bear that in mind when you want to open an account. If you do not have any of the required documentation, some banks will accept a letter from a professional person who knows you such as a GP , teacher or social worker.
Once you have opened an account, use it as your main account to receive your salary, transfer money and pay for utilities. This is a good way to build credit history because it’ll show you can manage your income and expenses effectively.
3. Set up some direct debits to pay bills
Put your name on utility bills (gas, electricity and water) and set up direct debits from your bank account to make the payments on time as missing payments can negatively impact your credit score. Always make sure you have enough money in your bank account to pay bill by direct debit.
4. Don’t miss any payments
It’s important to make sure you pay all your bills on time, whether that's utilities, your mobile phone, or insurance. If a lender has to go to court to get back the money you owe them, then a County Court Judgement (CCJ) will significantly affect your ability to get credit and will remain on your credit report for at least six years.
5. Get a secured credit card
To build your credit score, you must show lenders you’re responsible and can make regular payments and this means seeking out opportunities to borrow, repay and create a positive credit history. However, credit card providers will perform a credit check when you apply for a credit card and see that you have little to no credit history. That’s where a secured credit card such as DND’s Secured Score Mastercard can help. When used responsibly, a secured credit card is one of the best ways to build credit.
With a secured credit card, you pay a security deposit to the lender and this amount becomes your credit limit. A secured credit card works like a normal credit card. Use it regularly to make small purchases such as groceries or petrol, and then make at least the minimum payments when due (but more is better), and your credit score will increase (assuming you continue to make your payments on all your other bills). All your payments, including any you miss, are reported to the credit reference agencies every month. Good financial behaviour is rewarded with a credit score increase. Repeating this process over and over, month over month is a solid way to build credit history and boost your credit score.
6. Get on the electoral roll.
According to Experian, being registered to vote in the UK means lenders can check that you live where you say you do. If you are new to the UK and not yet eligible to register on the electoral roll, you can add a short notice of correction to your Experian Credit Report explaining why.
7. Don’t apply for credit too soon
Be careful about how soon you apply for credit. Each time you apply for a credit product like a credit card, loan etc. it has a slight negative impact on your credit score. Best practice would be to wait at least six months after completing the above steps before applying for any form of unsecured credit.
Ask the lender if they will conduct a hard or soft credit inquiry before assessing your credit application. A soft credit inquiry is where the lender has an initial look at the information held on your credit report allowing them to decide if a full application will be successful. In this way, they do not conduct a hard inquiry right away, only if they are confident you’ll be approved. Other lenders can’t see these soft searches and they won’t impact your credit rating.
8. Request a copy of your credit report
Once you’ve invested some time into building your credit, request a free copy of your report at Experian, Equifax or Transunion and check that there are no mistakes reported. A credit report mistake is a common reason why people are refused credit. You can also see on your report all the factors that are contributing to your score and whether they are positively or negatively impacting your score.
It’s important to remember that credit is a responsibility. There are some things in life we simply cannot buy without credit such as a new home. Few people can buy a house, or even a car, outright, therefore being able to borrow money is important to achieving your goals and building a better life. While accessing credit and keeping up with repayments can improve your credit score, missing payments will cause your score to go down, affecting your chances of borrowing money in the future. Only access credit when you are certain you can make the repayments. Credit is a means of enhancing your life but it can also be dangerous if you are not able to successfully manage the credit responsibly.
Yes a GP is a Dr - general practitioner. Widely used term in the UK
