If you’re searching Google for credit score or credit rating in the UK, you’ll end up finding a million articles containing tons and tons of tips. Some of them are very useful, and some of them are just too much unnecessary information. This is why we’ve decided to create a quick how-to guide for building up your credit rating. Bear in mind that we are European citizens who moved to the UK pre-Brexit and the tips below reflect our own experience.
What is a credit score (credit rating) and why should you care?
Although some people spend years in the UK and never worry about credit score, this magic number affects quite a lot of aspects of your life in the UK. Here are just some examples of things that will be affected by your credit score:
- Pay monthly mobile contracts
Companies are unlikely to give you a mobile deal if you have a poor credit rating and you’ll be stuck with pay-as-you-go options.
A lot of the rental agencies will check your credit rating, and you might be refused a flat. Alternatively, the agencies might ask you to either find a guarantor or pay 6 months or a year rent in advance.
- Car insurance
Your car rental insurance is most certainly going to be higher if your credit rating is not good.
- Phone finance
Without a rock-solid credit score, no company will allow you to pay monthly for your new phone.
There are a lot more aspects in which your credit rating can be a pain in a**, but I am sure you already get the idea.
How long does it take to build up a good credit rating in the UK?
The exact answer is a mystery, but within a year you can do a lot. In some cases, even 6 months will be enough. But please, prepare yourself mentally. This is not a quick process and requires dedication and some very deliberate actions.
What to do for a high credit score?
This is not an exhaustive list of everything that will play a role in creating your credit score. Nonetheless, these are the basics and some of the tips here we’ve learnt from people working in banks (otherwise we would have never known). If you get these right, you’ll surely be on the path to an awesome credit score.
Don’t open many bank accounts and don’t make changes to your current ones unless vital.
Banks and financial institutions care a lot about the age of your bank accounts, but it’s not enough to only have a couple of old accounts. What they do is sum the age of your accounts and split it by the number of your accounts. For example:
If you have 3 bank accounts with the following parameters:
a) Barclays account (1 year);
b) HSBC account (2 years);
c) Monzo account (4 months);
bank institutions will sum up the time (1 year + 2 years + 4 months), divide this by 3, and say that the median age of your accounts is approximately one year and one month.
Don’t move too often
Although it may sound silly, lenders don’t like people who change flats too often, so pick up your apartment wisely and stay put.
Be careful with the address you choose
In the UK, lenders will score your postcode, and it will play a role in your overall score.
What’s most important, though, and a little tricky, is that if your address isn’t adequately reflected on the map of the city, then the credit rating of others may affect yours. Let me elaborate. Ellie and I live in an old victorian house near Shoreditch. The house has four floors and therefore, four apartments. Nonetheless, the address is not submitted correctly as four separate flats. Every time we have to fill up documents online where there’s a drop-down menu, we only get the street number and street name (18 Our Street Name). There’s no separation between flat 1, flat 2, flat 3, and flat 4 on this street. We can only pray that the rest of the people in the building pay their bills on time…
Always(!) have money in your main bank account
Here’s the deal: a credit card (must-have) or an overdraft (not recommended) is a form of credit you will receive by your bank account based on the income that you have. When it comes to a loan or finance (a kind of a loan, often with 0% interest rate), however, things are different. What matters then is how much money you have in your account at the end of the month!
PRO TIP: most banks run an automatic check of bank accounts at the end or at the beginning of the month. This is done because, for the most part, people in the UK get their salaries between the 25th and the 5th. So, what you want to ensure is that you have as much money as possible between those dates. The safest bet is to leave a significant amount before your next salary arrives.
Get a credit card and pay it off every month
Surprisingly, getting a credit card is not difficult once you have a steady income coming into your account for three consecutive months. Sure, you’re not going to get the best rates in the world, but you can’t afford to be picky, and quite frankly, the interest shouldn’t matter. Once you get your credit card start using it for your daily expenses. Leave your salary in your main account (as much as possible) for the month. Once your new salary is in, simply pay off the credit card in full. Repeat this every month (without fail), and it will most certainly help you build up your credit score.
Don’t get any ethnicity, religion, or any other sub-culture credit card
A friend of ours recently told us that when she first moved to the UK, someone recommended an Islamic credit card. Apparently, the interest rates were much better, and it generally sounded like a good idea. Although she’s an atheist, she opted for that card. It made sense financially at the time. A few months later, however, she ended up realising that because of her affiliation with that card she’s unable to take a loan. Now, I know it sounds weird, and I don’t quite understand the reasons for this (once I complete more thorough research and get an understanding I will be updating this article), but she says that people with such accounts aren’t allowed to take loans. Go figure…
Start with LOQBOX as early as you can
I wish I had known about LOQBOX when I moved here, but unfortunately, I only learned about this opportunity a few days ago. In simple terms – LOQBOX is a savings account which acts as a loan. Every payment you make towards the account counts as a re-payment of a loan. The company reports your regular payments to all credit rating institutions, thus increasing your score.
But why do I need this, you ask, can’t I just take a loan? You’d think so, right! It’s not that simple. If you’ve never taken a loan before the chance of being approved for one is minimal. What’s worse is that even if you do get approved, the interest is going to be ridiculous. With LOQBOX, you avoid this problem, and instead of paying a crazy interest on an actual load (which, let’s admit, is stressful) you get to have some savings. Before you go ahead and sign up, though, make sure you read and understand all terms and conditions. Surprises with financial products can be extremely unpleasant.
Pay your bills on time
This should go without saying, but to be a responsible blogger, I need to mention it. Always pay your bills on time. Make sure your direct debits don’t bounce. In simple words: make financial planning a routine. Ellie and I only spend a day each month to plan our finances, set up calendar reminders where needed, and go about our lives. You may think it’s not necessary, but we managed to rent an apartment by ourselves (without a guarantor) only after 8 months of me being here and 3-4 months of Ellie’s life in the UK.
Register to vote
You may not consider it essential, but registering to vote is critical for your credit rating. The process only takes a few minutes, and you can do it online. Here’s the link to the form: https://www.gov.uk/register-to-vote.
As I mentioned at the beginning of this article, this list is not exhaustive. There’s a lot to learn about credit score in the UK and plenty of rules to follow. If you’ve recently arrived in the UK, or are just now starting to build your credit rating, these tips should help.
How to track your credit score?
All of the above rules will help you build a good credit rating in the UK, but don’t forget tracking it. To ensure you’re always aware of the top of your game register for the following 3:
- Experian – https://www.experian.co.uk
There’s an app you can install on your phone to keep track of your credit score and I strongly recommend it. There’s a free and a paid version of the app, but you are unlikely to need the upgrade.
- Equifax (ClearScore) – https://www.clearscore.com
Equifax is the institution, ClearScore is the extra service that has created an app.
- Callcredit (CreditCarma) – https://www.creditkarma.co.uk
Just as above, Callcredit is the institution and CreditCarma is the company that’s made an app.
Your credit score will generally be similar in all 3 of them, but it’s crucial to keep track of the changes that happen in your records. Good luck!