Building your credit should be on top of your list as a migrant in the UK because your credit score influences everything: the loans you can apply for, your car insurance, and even the type of neighbourhoods you can rent from.

Your credit score is the difference between enjoying your stay in the UK and struggling to access basic services like a mobile phone carrier. 

Unfortunately, you can’t transfer your credit history from your home country to the UK. You have to start afresh, which can be hard for migrants used to paying for services with cash. 

But starting afresh is not a bad thing; anyone can build their credit. We will explain how credit scores work, how credit affects your life, and how you can build your credit in the UK. 

What is a credit score? 

A credit score is a 3 or 4-digit number that measures and ranks your ability to pay for goods and services based on your financial history. 

Your financial history is a record of how you spent money in the past. Some factors that influence your credit history are loans, mortgages, credit cards, missed payments, mobile phone contracts, etc.

What is a good credit score? 

Your credit score is calculated and shared with lenders by Credit Reference Agencies (CRA). The three biggest CRAs in the UK are Experian, TransUnion, and Equifax. 

It is not strange to have different credit scores. CRAs and even some lenders each use different factors and formulas they use to calculate an applicant’s creditworthiness.

Here is a table showing how the three major credit reference agencies in the UK rank credit scores in 2022. 

How does credit affect your life

Your credit score is used by lenders, landlords, energy providers, insurers, banks, etc. to determine if you can pay for their services.

It is important to have a good credit score because it affects: 

• Your credit card’s interest rate and limit 
• The types of loans you can apply for 
• The terms and interest rates of the loans you can apply for 
• Your car insurance 
• Your mobile phone contracts 
• Most basic services like rent, phone bills, electricity, etc. 

Five ways to build your credit score in the UK as a migrant 

You can think of building your credit as a way of showing that you can be trusted to pay for goods and services. In simple terms, you build your credit by making smart financial decisions, which is easy in theory but can be hard to practice. 

You can build your credit by following these 5 easy steps

Open small lines of credit 

You can show your credit trustworthiness by opening small lines of credit like a phone bill or a store card. These lines of credit do not need you to have a good credit score, so it is an easy place to start from. 

Get a credit building card:

Paying off your credit card debt shows that you can be trusted to pay off your debt. As a migrant, it is best to start with a credit-building card, which is slightly different from a regular credit card. 

Credit-building cards have low credit limits and high APRs (Annual Percentage Rates) compared to conventional credit cards. They are also not eligible for some credit card promos.

Low credit limits and high APRs help you minimize the amount you spend on your credit card and motivate you to not miss credit card payments.

Don’t use more than 30% of your credit limit 

This sounds counterintuitive, but it is advisable to not spend more than 25-30% of your credit limit. This is because you do not want banks and lenders to get the impression that you need your credit card to survive. Your credit building card is only to show that you are financially responsible.

So if your monthly credit card limit is £100, you should not spend more than £30 in a month. You should also make sure you pay back the £30 at least 7-10 days before it is due. 

Set up direct debits

Late or missed payments can negatively affect your credit score for up to 6 years. You can prevent this from happening by setting up direct debits. Direct debits are regular payments you authorise to be deducted from your debit card. You can use direct debit to pay your regular bills and utilities like gas, electricity, phone bills, etc on time. 

You can also use creditladder to record your monthly rent payment. 

Register on the electoral roll

Voting isn’t mandatory in the UK, but registering on the electoral roll helps lenders confirm your identity (name and address) and boost your credit score.

Sadly, not everyone is eligible. You qualify if you are:

• At least 18 years 
• A British, Irish or EU citizen living in the UK
• A qualifying Commonwealth citizen who has permission to enter or stay in the UK, or who does not need permission

If you do not qualify, you can add a notice of correction to your credit report. But this is a short-term solution that should be changed once you are eligible to vote. 

Conclusion

Building your credit takes time and effort, however, it pays off in the end. The increased financial that better credit will come in handy whenever you need a loan either for your personal finances or for your business.