What is Universal Credit?
Universal Credit is a benefit to support you if you’re of working age and on a low income or out of work. It is a means-tested benefit, which means the Department for Work and Pensions (DWP) will assess your circumstances to decide how much money you need to live on and how much Universal Credit you need.
To qualify for Universal Credit you must be:
- 18 or over
- Under State Pension age
- Live in the UK
What does Universal Credit replace?
Universal Credit has replaced these benefits:
- Child Tax Credit
- Housing Benefit
- Income-based Jobseeker’s Allowance
- Income-related Employment and Support Allowance
- Income Support
- Working Tax Credit
Does Universal Credit affect credit rating?
If you are claiming Universal Credit it won’t affect your credit rating. Your credit score, or rating, looks at your borrowing history, what debt you have and whether you have repaid your debts reliably.
Universal Credit forms part of your income so wouldn’t appear in your credit history or affect your credit rating.
What is my credit rating?
Your credit rating is your financial history and how you have dealt with debt expressed as a number so lenders can quickly assess whether to lend you money or not. It is also known as your credit score.
If you apply for a credit card or a loan, for example, the lender will look at your credit history to see how risky lending to you is likely to be. If you have missed repayments on a debt or been late paying your credit card bill this will lower your credit score.
With Experian your score will range from 0 to 999. If you have a low score you are likely to be refused when you apply for credit cards, loans and mortgages. But if you have a high score it shows lenders that you have a good financial history and you’re more likely to be offered competitive rates.
Will benefits be visible on my credit report?
Your credit report focuses on your debts and not your income so there is no reason for any benefits you claim to appear on your report.
What you will see on your credit report are details of any credit agreements you have now or have had in the past. This means it is made up of mortgages, credit cards, loans, overdrafts and any other credit you have.
What does affect my credit score?
Think about what you would consider before you lent money to someone. You would want to know how reliable they are at repaying their debts, if they can handle the debt they already have, and if they really need to borrow money from you.
These are all the things that lenders want to know, and they check your credit report to find out. This is what will lower your credit score:
- Lots of applications for credit – Applying repeatedly for credit cards or loans will impact your credit score as it looks like you are desperate for credit and struggling to get it. There are two types of search, a soft search which won’t be seen and a hard search which will be visible to lenders. To find out more about soft and hard searches you can read our guide.
- Being at, or close to, your credit limit – Lenders can see what your credit limit is and how much you currently owe. If you are near your credit limit it has a negative effect on your credit score as it looks like you might be in financial difficulty.
- Missed or late payments – Lenders will question if you can afford your debts if you aren’t paying your bills on time. These can be recorded as a default on your credit report which will lower your credit score for up to six years.
- Borrowing more than you can afford – If you can’t pay off your debts you may end up with a Debt Relief Order or Individual Voluntary Arrangement. These are recorded on your credit report and will lower your credit score for six years.
- Serious debt problems – When you fail to repay a debt the lender can try to get their money back by getting a Court judgment against you or you could be declared bankrupt. This is a sure sign you have struggled with debt so will seriously affect your credit score and, as a result, your ability to borrow in the future.
Find out more with our guide to what affects your credit score.
Does Universal Credit affect mortgage applications?
Claiming Universal Credit will not appear on your credit report, but it could still affect your ability to get a mortgage.
When a bank or building society is assessing your mortgage application, they will look at your income to see if you can afford to repay the mortgage. If you are receiving Universal Credit it is likely because you have a low income which means you may fail the mortgage lenders affordability tests.
That doesn’t mean your Universal Credit is stopping you get a mortgage. It is the financial circumstances that mean you are claiming Universal Credit that could affect your mortgage application.
You can avoid having your mortgage application refused – which could have a negative impact on your credit score – by checking a lender’s eligibility criteria before you submit your application.
Will benefits affect my chances of getting a loan or credit card?
While claiming benefits does not affect your credit rating it could reduce your chances of being accepted for a loan or credit card. That’s because if you are claiming benefits it is likely you have a low income. That could mean you fail to meet the minimum income requirements needed for most credit cards or loans.
Being on benefits doesn’t automatically mean you can’t get a loan or credit card though. If you have a good credit history and can afford the repayments, there is no reason your benefits should affect your application.
How do I improve my credit score?
- Register on the electoral roll – This shows lenders that your address is correct.
- Pay your bills on time – This will boost your credit rating as it shows you are a reliable borrower.
- Reduce your debt –Being close to your credit limit is a sign you could be in financial difficulty which will put potential lenders off so try to reduce your debt.
- Sign up to Experian Boost and see if you could raise your score instantly. By securely connecting your current account to your Experian account, you can show us how well you manage your money. We’ll look for examples of your responsible financial behaviour, such as paying your Netflix, Spotify and Council Tax on time, and paying into savings or investment accounts.
For more information and simple credit-boosting tips read our guide on how to improve your credit score.