Setting up a new life in the UK comes with a unique set of challenges. One of the biggest? Being held back by a low credit score.
It’s something that affects everyone who moves here, no matter where they lived before. But why is having a good credit score so important? And what can you do to improve your score? To find out, we spoke to credit expert Ash Bhatt, the founder and CEO at Pillar.
But first…
What is a credit score?
In the UK, your credit score is a 3-digit number ranging from 0-999. It represents how likely you are to repay any money you borrow.
The three main credit reference agencies in the UK (Experian, Equifax, and TransUnion) calculate this score based on your history of borrowing money and managing your finances in the UK. Each credit agency uses slightly different criteria to work out your score.
Why is having a ‘good’ credit score important?
When you apply for loans, credit cards, mobile phone plans and rental agreements in the UK, companies will look at your credit score. The higher your score, the more likely it is you’ll get approved.
A ‘good’ score can also unlock better deals, such as lower interest rates (so you pay less over time), higher borrowing limits and better financial products.
On the other hand, a low score can make it very difficult to get some essentials. Like mobile phone plans, rental agreements, car financing, credit cards and mortgages… the list goes on. All stuff that’s pretty important when you’re setting up a life in the UK.
Why do I have a low credit score?
For people who are new to the UK, there’s a catch. As your credit score is only based on information from UK companies, there will be very little information about you when you arrive.
This means the UK credit reference agencies struggle to work out how likely you are to repay any money you borrow – so your score will be automatically low. Even if you had stellar credit back home.
This is known as having a ‘thin’ credit file.
How can I boost my credit score?
There’s no quick fix to a low credit score. But there are lots of things you can do to help improve it over time.
And that’s where we hand over to Ash. His company Pillar specialises in helping people who are new to the UK build their credit score and access fairer products.
Here are his seven top tips for boosting a low credit score.
1. Find a long-term address
Yes, definitely easier said than done. However Ash says it’s a big factor in boosting your credit score.
“In the UK your credit score is tied to the address you live at, so it's important to get a fixed address as soon as you can,” he explains.
“Additionally, companies like to see stability. So when you have one address for a longer period of time, it can make you seem like less of a risk”.
2. Get a credit card
You’ll likely find that credit card options are limited with a low credit score. But it is still very beneficial to have one.
“A credit card is probably the best tool out there to build your credit score – even if it has a low spending limit and a high interest rate,” says Ash.
“This is mainly because credit card companies report to the Credit Reference Agencies every month, so you can quickly build up a record of trusted borrowing. Spending a little and paying it back in full every month to avoid high interest shows lenders you can be trusted to borrow responsibly.”
However, he also warns against relying on it heavily. “When using a UK credit card to build your credit score, it’s important to only spend what you can afford to pay back. Otherwise you can be charged hefty interest fees – and further damage your score. Heavy utilisation, and using your credit for cash withdrawals, can also harm it.”
What if you’re worried about the high interest? Ash now has a solution for that too.
“At Pillar, we’ve just launched the Pillar Build Card to address this very issue,” he explains. “Unlike typical credit cards, the Pillar Build Card requires users to place an initial deposit. This then unlocks an interest-free credit limit up to the amount of the deposit.
So if you put in £100, you can then borrow up to £100 without worrying about extra charges.
This product builds your credit score like a normal credit card but without interest. And since the deposit acts as security for the credit, there’s very little risk of a negative impact to your credit score if you miss a payment.”
3. Open a UK bank account
The difficulty of opening a bank account in the UK without a permanent address is something we hear about a lot at Marshmallow. But if you have been able to tick this tricky task off your list, you’ll find your UK credit score starts to improve.
“Having wages paid regularly into a UK bank account is more evidence of financial stability and responsibility,” says Ash.
4. Pay your bills on time
“Making regular, on-time payments for bills – like electricity, gas, water and council tax – is a simple way to raise your credit score over time,” says Ash.
“Choosing to pay via direct debit means these payments are taken automatically from your account every month, so you can never forget.”
5. Limit how many products you apply for
When you apply for a financial product, like a mobile phone plan or a credit card, lenders may run a ‘hard credit check’ to see if you qualify. This means the search will be recorded in your credit history and will be viewable by other lenders.
“Hard credit checks are sometimes unavoidable,” says Ash. “But too many in a short space of time can give lenders the impression you’re having financial trouble – and will bring your credit score down. Ideally, you only want to have one ‘hard’ check every six months”.
So what should you do? “Always do your research before applying for finance.” Ash advises.
“Online eligibility calculators can sometimes give you an idea if you’ll be accepted by running a ‘soft check’ – which doesn't affect your credit score. And if you do get rejected, be careful about what you apply for next.”
6. Register on the electoral roll (if you can)
Not everyone who moves to the UK can register to vote. But it’s one of the simplest ways to help boost your credit score if you can. “Lenders use the electoral roll to verify your address and identity,” says Ash. “So simply registering to vote shows stability”.
But what if you don’t have a vote in the UK? Ash suggests getting in touch with credit reference agencies directly. “This is known as a Notice of Correction – and it tells lenders that you have a valid reason for not being on the electoral roll.”
7. Sign up for Pillar
Pillar is a free app that helps you keep track of your three main credit scores in the UK. But that’s not all it can do.
“With our Pillar Boost feature, you can link any rental payments coming out of your bank account directly to your credit score,” explains Ash. “That way, when you pay your rent on-time and in full every month, it tells credit agencies that you’re reliable and financially trustworthy. This results in your credit score improving gradually over time.”
Pillar Boost normally costs £4.99 a month. But if you’re a Marshmallow customer? You can get 3 months for free – followed by the discounted price of £2.99. It’s just one of the perks that comes included with every car insurance policy. T&Cs apply.
Find out more about Marshmallow Perks
