Credit, credit score and credit history? What does it all mean? Credit scores and credit histories do not cross borders. Unfortunately, however great your credit score may have been at home, it’s back to zero if you move to another country like the United Kingdom. There is no need to worry, however, as you can work to build your credit score in a number of ways.
Here we’re looking more closely at:
- Why credit scores matter
- How long it takes to build your credit
- How credit scores work
- How to view your credit score and history
- How to improve your credit score
Why credit scores matter
Your credit history is a record of how you’ve used credit. It includes credit you have been approved for, how much you have access to and the number of applications you’ve made. Lenders such as banks use your credit history and related score to decide if they can lend you money. They give lenders a clearer idea about your reliability in making payments. It is only one factor that they use to make the final decision, but it can be one of the most important.
How long does it take to build your credit score?
You can’t get a good credit score overnight, but you can make steps towards showing your financial responsibility. This will, in turn, improve your score and show lenders you are reliable. If you’re just starting out in the UK, then you need to begin with an active bank account. Remember, it can take 3 to 6 months for your first credit score to be calculated. Managing your money responsibly and keeping on top of payments is the best place to start for a credit history you can be proud of.
How credit scores work
There are three main credit reference agencies in the UK. They calculate a score based on how you’ve previously managed your finances. The score is built from your existing credit history and will be calculated using information such as the types of accounts you have, the debt you hold and if you’ve ever made any late payments. With your permission, lenders can look at the score and decide whether they want to lend you money.
The score is a reflection of your ability to get credit. If you have no credit history, your score will be negatively impacted, but only in the short term. Lenders need evidence to agree to lend anyone money. With no credit history, they can’t get this evidence. Therefore, accessing credit in the UK is only possible after beginning to build your credit history.
Overseas Credit History
As we mentioned at the beginning, it does not matter if you have a perfect record in another country. Credit scores cannot cross borders, so you do have to start again when you move to the UK. This can be frustrating, but with a good attitude to money and maintaining the same practices as you always have, you’ll soon build a similar record in the UK.
How to view your credit score and history
The UK has three separate credit referencing agencies: Equifax, Experian and TransUnion. If you visit each agency online, you will be charged a fee to access your report. However, plenty of service providers and apps make it much easier and, importantly, FREE to view your score. To access your:
- Experian Credit Score: register with MSE Credit Club, and you can access your Experian credit report monthly for free.
- TransUnion Credit Score: register with Credit Karma for free regular access to your TransUnion report.
- Equifax Credit Score: register with Clearscore for free regular access to your Equifax report.
The scores are all calculated slightly differently as the agencies may hold different information on you. You should find your scores are around the same level across all agencies, and all the above sites also provide tips on improving your score.
How to improve your credit score
Understandably people want to know how to build up their credit score and gain easier access to good rates of credit. There are many ways you can improve your score. Remember, it does take time, and you need to be disciplined. Here are some of the most effective ways of improving your credit score:
1. Register to vote
Getting on the electoral roll is easy and quick. Lenders use this record to verify your address and name are correct and up to date. If you aren’t eligible to register on the electoral roll, which is sometimes the case for non-UK nationals, you can add a “notice of correction” to your report to explain this status, and lenders will see this.
2. Open a bank account
A UK bank account is essential for most day-to-day activities but also for your credit history. Opening and managing a bank account shows companies you are financially responsible. Remember to stay within your allowed overdraft too.
3. Consider credit cards
Sensible use of credit is looked on positively by lenders. Credit cards help to build your credit, and ensuring you pay it all off on time each month will positively impact your credit score.
4. Manage your bills and outgoings
Looking after your energy bills, utilities, and other essentials helps to show lenders you are responsible. If you miss a payment on any bill, it will eventually show up on your credit record, so it’s best to always keep on top of them.
5. Consider Direct Debits
Direct debit payments ensure you never miss an essential payment and minimise the risk of late or missed payments turning up on your credit report. Setup direct debits wherever you can.
6. Keep within your Limits
Once you are approved for credit, don’t hit the max immediately. Keeping your credit usage around 25% of what is available is recommended to help keep your credit score high.
Building your credit score in the UK will take time and commitment. However, the long-term benefits are worth it as you are able to access a wider range of quality credit sources for home ownership, buying a car and other big purchases.