People who move to the UK face a challenge when it comes to accessing credit: when you apply for a loan in the UK, most lenders focus on your credit history in this country.
Unfortunately, if you’re a recent arrival, you won’t have much of a credit history, which can make access to credit for things like car loans harder than it should be.
In this article, we’ll look at how credit works in the UK, and offer some tips and advice on how to build your credit score.
We’ll also cover Open Banking lenders, FCA-authorised providers who use technology to look at affordability data when people apply for personal loans. As a result, they’re able to base lending decisions on your actual financial situation - rather than what someone else says about you. Find out more at www.koyoloans.com. Representative APR 27%.
What credit score do you start with when you move to the UK?
According to Experian, one of the UK’s biggest credit bureaus, “credit scores can’t cross borders”(1). That means that if you’re new to the UK, you’ll be starting from scratch. It’s not just that you have a low credit score - the problem is that you’ll have a blank slate.
When deciding whether to approve a loan, traditional lenders want to know whether you have a track record of repaying debt in the UK. If you don’t have any track record, you’re an unknown quantity. Lenders build their business on the ability to accurately price risk, and without data on repayments and your personal finances, they’re effectively blindfolded.
To summarise, when you first move to the UK, your credit history will be empty, and this will make it difficult to borrow money. It may also lead to higher interest rates until you build up your score.
There is one silver lining though: although credit information from your home country won’t be visible in a UK search, you can still get a copy and submit it to UK lenders direct - according to Experian, this may help with your application(2).
Here’s how different CRAs categorise credit scores - note that each provider uses a different scale and different categories, so the below is just representative:
How do new immigrants increase their credit score in the UK?
Reading the previous section, you may have wondered: “if I can’t borrow, because I’m new to the UK, then how can I build up my track record of paying off loans?” You’re right that this is a bit of a catch-22 situation - fortunately though, paying off credit isn’t the only way to improve your credit history. Here are some other ways to add extra positive information to your credit profile:
Set up and use a UK bank account
This is a great way to show UK credit reference agencies (CRAs) that you can manage your money well and will have a positive, ongoing impact on your credit score. For an even bigger impact, staying well below the overdraft limit (if you have one) is also viewed positively by CRAs (6), who like to see a low credit utilisation ratio.
Set up and use a credit card
Again, this is a practical way to increase your credit score, particularly if you show discipline by keeping well within your credit limit. Some credit cards (known as “credit builder” cards) are designed by credit card issuers with exactly this in mind.
In general, credit card companies are more open to new arrivals in the UK than personal lenders. Of course, racking up a lot of new credit card debt will have a negative effect on your score, so it’s important to be disciplined with it, making just a few small purchases and covering your credit card payments in full every month.
Just as a heads up, although the above applies to most types of credit card, spending on a debit card won’t have the same effect on your credit score.
Get on the electoral roll
This is one of the first things that CRAs look for, and is a really quick fix: just head to the Government website to register. It’ll then be logged on your credit file.
Take out a mobile phone contract
A mobile phone contract is technically a credit agreement, and you can use this to your advantage. By making regular payments, you’re demonstrating your ability to repay debt, which is logged favourably on your credit report. You’ll need to keep on top of it though - late payments will harm, not help, your credit score.
Make regular payments count
Ordinarily, rent payments and many everyday bills (such as Spotify and Netflix subscriptions) do not count towards your credit score. However, new services are changing that, allowing you to make your payment history count. For example, Credit Ladder allows you to share details of your rent payments with Experian and Equifax, and Experian Boost does the same for utility bills paid via direct debit (although only Experian can view this).Both of these services allow you to improve your credit score, simply by logging existing payments you’d be making anyway.
How long does it take to build a good credit score in the UK?
There’s no straightforward answer to this one, unfortunately, as CRAs don’t disclose exactly how the scores are calculated.
However, taking the steps above is likely to have an initial impact on a bad credit score within a few months (the time it can take for records to be updated). That might be enough to start accessing some more competitive credit deals.
Getting a really strong credit score is likely to take years though, as many lenders (and therefore CRAs) want to discover whether you can be trusted to make debt repayments over the long term.
What should I do in advance if I’m thinking about coming to the UK?
Unfortunately, there’s not much you can do in terms of concrete preparation. UK banks do offer international accounts, but these come with strings attached, such as monthly or annual fees or minimum balances in the region of £25,000. It’s much easier to apply for a bank account when you have a proof of address, so this should be one of your first priorities.
The exception is international banks, which might have a presence both in your country and the UK, which should in theory make setting up a new account in the UK easier. However, anecdotal evidence suggests that these financial institutions don’t always make life easy, and there are stories of people ending up trapped in a nightmare of paperwork!
Can you get a loan in the UK without a credit history?
Yes - in fact, this is a subject very close to our hearts. In 2016, Thomas Olszewski - the founder of Koyo - moved to the UK. Despite having a good job and being able to comfortably afford repayments, he found accessing credit to be extremely difficult.
He realised this is a problem that affected millions of people who are new to the country, but also people who have failed to build a credit history in the UK more generally.
As a result, he founded Koyo, which uses Open Banking technology to securely view bank account data. This allows it to verify affordability - how comfortably you’d be able to meet repayments on a given loan.
By focusing on affordability, Koyo is able to make lending decisions based on real-world data, rather than what someone says about you, making it very well suited to new arrivals in the UK. You can find out more about the specifics at www.koyoloans.com, and Koyo has a representative APR of 27%.
In fact, taking out an Open Banking loan and making regular repayments on it can actually increase your credit score. For more information, see our full guide: does a personal loan affect your credit score?
What if I’m moving to the UK for work?
If you’re moving to the UK for work, unfortunately, you’ll still be starting from scratch when it comes to your credit history. For that reason, some employers who move their staff to a new country offer a one-off payment to cover moving costs and provide a financial head start for the new country. However, applying for a conventional loan is still likely to prove tricky.
The good news is that if you’ve recently moved to the UK for work, an Open Banking lender is likely to view you positively because your bank account data will show your new salary coming in. That means that an Open Banking lender can focus on affordability (rather than your credit history), giving you a fighting chance. For more information on how Open Banking works, take a look at our article, Open Banking explained.
Hopefully, the above guide gives you all the information you need. If you want to see for yourself what payments would look like on an Open Banking loan from Koyo, you can do so with our loan calculator - representative APR 27%. And if you want to look at some other options, you can look at our full guide to the best personal loans for people with a fair credit score.
And lastly, if there’s anything we haven’t answered, let us know in the comments section below!