How to build your credit score as an immigrant
Simply, a credit score is a numerical rating used to represent an individual’s ‘creditworthiness’: the extent to which they’re considered financially reliable, and suitable for credit. For anyone living and working in the UK, a good credit score is desirable – and, in many ways, necessary. The score itself is rated out of 999, and is calculated using complex algorithms that take into account a number of factors – including an individual’s credit history or report.
In this article, we’ll explore the various factors that impact credit scores. As well as how to actively build a credit score, and overcome any challenges. We’ll also look at how you can keep an eye on your score regularly – all of which will help you engineer a brighter, more stable financial future. Because without a good credit score, securing credit from banks or building societies quickly becomes very difficult.
Table of contents
WorldRemit Content Team
• 7 mins read • Updated
Credit scores and credit reports: what’s the difference?
Although some people mistakenly use ‘credit score’ and ‘credit report’ interchangeably, the two are different entities. While a credit report will influence a credit score, the two are not the same.
A credit report is a detailed account of an individual’s entire credit history. Including how much they’ve borrowed, when, and the manner in which they repaid this credit. A credit score, on the other hand, is a three-digit number, or ranking, out of 999 – and it’s influenced by both your credit score and other factors. It exists so that lenders can quickly gauge, at a glance, an individual’s financial reliability. In the section below, we’ll explore the different factors that impact a credit score, and how this number is calculated.
Factors that impact credit scores
A credit score is calculated using complex and accurate algorithms, taking into account financial and personal information. While there are also other, more general factors often taken into account by lenders – employment history, education level, income figures – these do not contribute to a credit score.
Below are the key factors that will impact anyone’s score, native or immigrant. And for anyone living and working in the UK, it’s important to understand these factors, and then manage their finances accordingly and responsibly to build a good score. Crucially, and this is perhaps most challenging for immigrants new to the UK, credit scores cannot cross borders. A UK credit score applies only to credit secured in the UK – this is why immigrants are sometimes labelled ‘credit invisible’. So, if you’re new to the UK, you’ll need to start from scratch. But don’t despair – with our help, you can quickly get yourself on the road to achieving a desirable credit score.
Length of credit
The length of time an individual has held open credit accounts will affect their credit score. In general, lenders view a longer credit history as more positive – and this will improve a score.
Credit mix
The number, and variety of different credit accounts – credit cards, loans, mortgages – will also affect credit scores. In a lender’s eyes, a diverse mix of credit accounts indicates financial stability, this will also improve a score.
Credit use and limits
If you use 100% of all your available credit on a credit card – commonly known as ‘maxing-out’ – this can have a significantly negative impact on your credit score. Especially if you’ve maxed out a credit card over a short period of time. Our advice: avoid maxing-out a credit card at all costs.
Payment history
Although it can be tough, particularly in challenging economic times, we strongly recommend always keeping up-to-date with credit card repayments. Late payments and missed payments can both have an undesirably negative impact on your credit score.
Recent credit enquiries
Applying for several credit accounts at once, or in a short period of time, may seem like a good idea if you need to fund an expensive new enterprise – but it can have a very bad impact on your credit score, as it will likely signify financial distress to lenders.
How to build a credit score as an immigrant
As we mentioned earlier, credit scores do not cross borders. So even if you followed exemplary credit practice back home, unfortunately it won’t be visible in a UK credit report or credit score. However, according to some Credit Report Agencies, supplying copies of your own national credit report can help with some lenders.
Either way, you’ll still need to build a new UK credit score – which is where we can help. Here are some easy ways you can begin to build your score:
Set up and use a UK bank account.
Set up and use a secured UK credit card.
Get yourself on the UK electoral register.
Take out a contract with a UK mobile phone operator.
Make your bills count toward your credit score.
Establishing your credit history
Every history has a beginning, and a credit history is no different – our best advice is simply to get the ball rolling. You’ll be amazed how quickly your credit score will start to improve, too. Two of the best ways of doing this are opening a UK bank account, and applying for a UK secured credit card.
Although being approved for a secured credit card isn’t guaranteed, it can be a very useful stepping stone for those without existing credit scores and ratings. A secured credit card works very similarly to a standard credit card; only it requires a deposit, usually refundable, once application is approved. The deposit size may vary from lender to lender, but some allow applicants to fund the deposit over time. A very important part of using a secured credit card, though, is regularly keeping track of spending – no big spending sprees, sorry – and ensuring you can pay your credit statement on time, every month.
Making payments on time
This is a must – and although it may sound obvious, is integral to maintaining and improving your credit score. This applies to all bills: phone bills, utility bills, and even rent (more on that later).
You may want to set up reminders or direct debit payments to ensure you always make payments on time. This is crucial – otherwise, a later payment can really hurt your credit score. Just a single late payment can stay on your credit report for 7 years, and drop your score by a hard-hitting 180 points.
Keeping credit use low
Credit use, or credit utilisation, is the percentage of your agreed credit limit that you use. The more responsibly you use, the better – this means avoiding ‘maxing out’ your credit card. If you need more credit, asking your lender to increase your credit limit can actually benefit your credit utilisation ratio – however, your lender may not always oblige. And we recommend against doing this too often, as it could suggest financial instability, and negatively affect your credit score.
If you have lots of financial obligations, you could also consider spreading them across different credit cards. This way, you could keep a consistent utilisation ratio across them all. However, again, we do recommend against applying for several credit cards at once.
Checking your credit regularly
As with any financial account, regularly keeping an eye on how much credit you have remaining is a good idea. That way, you can avoid any nasty surprises. You can also obtain a free credit score regularly via Credit Reference Agencies, such as: Experian, Equifax, and Clear Score. This is also a good way of monitoring for any errors or potential credit fraud. If you believe this has happened, report it immediately to the Credit Reference Agency.
Making your rent work for you
Rent is not typically included in a credit report, and so won’t affect your score. However, increasingly, financial institutions such as Creditladder are including rent as payment, and reporting it to Credit Rating Agencies. So maybe paying your rent could become a little less painful, after all?
What is a good credit score?
A credit score is rated between 0-999. A ‘good’ score is estimated to be between 881-960. Here are the score brackets, as stated by Experian:
Very poor: 0-560
Poor: 561-720
Fair: 721-880
Good: 881-960
Excellent: 961-99
Remember, your credit score will improve if you use credit responsibly.
How to check your credit score
Experian is the largest Credit Reference Agency in the UK – to access your score, simply register on their site. It’s totally free, and quick too. You can also access your credit report via any Credit Reference Agency.
How long does it take to build a credit score?
The sooner you start, the better. There is no fixed period of time that it takes to grow your credit score. Generally speaking, it will take 3-6 months to build a credit score from nothing – but you can have a fairly decent score within a year. An excellent score, of course, may take a few years. And you’ll need to demonstrate consistently responsible use of your credit.
Building a brighter financial future
Although it may seem daunting, building your credit score from nothing is possible. Many immigrants before you have faced the same challenge – and with responsible credit management, you could soon be flourishing financially. We hope that this article has been useful – for more insights head over to our blog. You’ll find a selection of helpful and informative articles put together especially for people living and working abroad.
And, if you’re sending money to loved ones back home, while trying to build your credit score here in the UK, we can help. Our low fees will save you money, and our service is fast and reliable – plus, it’s trusted by 8 million users (and counting). So, why not make a money transfer today?
The contents of this blog post does not constitute legal or financial advice and is provided for general information purposes only. If you require specific legal and / or financial advice you should contact a specialist lawyer or financial advisor. Information true at time of publishing.
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