How can Immigrants in the UK Improve Their Credit Score?

Credit scores are not valid across borders, meaning you will have to start from scratch when you move out to a foreign country. The approval of your loan application is contingent on your credit score as it helps a lender to check how committed you have been towards your financial obligations.

In the absence of a proven track record of past payments, you are an unknown quantity. No lender would like to take on the risk by giving the green light to your application when you do not have a credit history to show.

How can you build your credit score as an immigrant in the UK?

You cannot build a credit score without borrowing money, and no lender will sign off on it if you do not have a credit history. It is a catch-22 situation; well, getting approval is still possible.

• Set up a bank account 

Having a bank account leaves a positive impact on credit reference agencies, provided you do not run up an overdraft. Maintaining a minimum balance will show that you manage your finances in a good way.

You will open an international account, but they come with monthly fees. You must have a proof of address to open a bank account. That should be your priority if you are looking to build your credit score from scratch.

Be ready to complete lengthy and tortuous paperwork because, undoubtedly, countless formalities will be waiting for you. Banks are stricter with immigrants. You are unlikely to get some privileges that the Brits get.

• Get a credit card 

A credit card purchase will help you establish your credit history. You will have a given timeframe to pay off the balance. Payments within the interest-free period are a must to get away with interest. However, you currently do not have a credit score, so that you will be charged a credit card with a higher fee. Rewards and other associated benefits will also be restricted.

• Leverage a mobile phone contract

A mobile phone contract comes in handy for building a credit history. These contracts are like credit agreements. Regular payments are a sign that you can manage payments. Avoid late payments, as they will harm your credit score. Unfortunately, they stay on your credit file for two years. You cannot expect to have your credit report healed.

• Other timely payments also count 

You must be renting out accommodation. Do not forget that you are supposed to make rent on time. Timely payments will show up on your credit report. Similarly, be careful about the payments of energy bills, broadband bills, etc. Use auto-debit mode so you do not fall behind on payments.

• Take out a credit builder loan 

Credit builder loans might not be an option for all immigrants as some financial institutions provide these loans to those who are permanent residents in the UK. However, not all lenders will give you a hard pass just because you are an immigrant. Fixed payments are made every month until the settlement of the debt.

At the time of applying for these loans, ask your lender if they report payments to credit reference agencies. No lender is bound to inform credit bureaus of your on-time payments, so do not assume that it will happen automatically. But they will quickly report defaults and late payment fees.

These loans can be extortionate, so be careful about the payments you make. These loans are mainly available from credit unions. Get more details about these loans from their official website.

• Responsibly manage your debts 

When you have got approval, you need to ensure that you do not push your credit score in the right direction. Here are the extra things you need to bear in mind.

Have a sufficient balance in your account so you do not struggle to make payments. The auto-debit feature will be helpful to have a due date slip your mind. Late payments can quickly drag your credit score and worsen if the debt is overdue for the past 30 days.

Keep the credit card balances low even if you pay them off within the interest-free period. Your credit card balance should be as low as possible when your credit card company informs it to credit bureaus. The score is calculated based on the balance you keep at the time of reporting to agencies. Aim at not exhausting more than 25% of the limit available.

Understand how each type of loan works. For instance, urgent doorstep loans can help keep things ticking along during a financial emergency, but they can be expensive. Full settlement within two weeks can make it challenging for you to stick to your budget. Scrutinise the consequences before you apply for any loans.

Keep checking your credit history periodically to ensure that your credit file does not consist of any errors. Sometimes, identity theft can destroy your credit rating. A strong credit history will let you take out long term loans for bad credit.

How long does it take to build your credit history?

Of course, it takes time. It will take months or sometimes years. It is not possible to straightaway say the fixed time period to have built your credit rating.

Your chances of having a good credit score are higher when you do not make late payment fees or defaults.

The bottom line

Immigrants cannot take their credit scores from their native countries to the UK, and therefore, they will have to build credit from scratch. However, it does not mean that their credit score will be zero, but it will be very low.

Try a credit builder loan, use a credit card and take out a mobile phone contract to improve your credit score. You will likely see the improvement faster when you make payments on time. Do not forget rent and utility bills.

Have a fixed accommodation and get your utility bills in your name. This is the first step toward improving your credit rating.