Does Universal credit affect your credit score?

Many families are struggling financially due to the coronavirus pandemic and claims for Universal Credit have soared. So, we look into whether or not claiming benefits impacts your credit score or your eligibility.

We understand that it’s a worrying time for most people at the moment. There are health concerns and job uncertainties at the forefront of our mind.

Does universal credit impact my credit score?

No, receiving Universal Credit does not impact your credit score. So, if you need to boost your income and you’re eligible, then don’t turn it down

Does receiving Universal Credit stop me getting a loan or credit card?

Not on its own. Bear in mind, the reason a lot of people apply for benefits is that their income is too low, or they’re out of work. It is often these financial reasons that can stop you from being eligible for a credit card or loan. It’s not the fact that you’re claiming Universal Credit itself.

We discuss this more below, as well as how to check your eligibility and improve your chances of approval going forward.

What is Universal Credit?

Universal Credit helps people with their living costs if they’re unemployed or on a low income. 

This includes:

• Child Tax Credit
• Working Tax Credit
• Housing Benefit
• Income Support
• income-based Jobseeker’s Allowance (JSA)
• income-related Employment and Support Allowance (ESA)

If you are entitled to several of these benefits, they will be merged into one regular payment of Universal Credit.

Do I qualify for Universal Credit?

To qualify for Universal Credit, you must:

• Live in the UK
• Be aged between 18 years and state pension age (some exceptions apply regarding age). 
• You must also be on a low income or unemployed
• Have less than £16,000 of savings.

If you live with a partner, their income and savings will also be taken into account, even if they’re not applying for Universal Credit themselves. 

To check if you’re eligible, you’ll need to visit the government website, where you can also make an application and find contact details for the helpline. 

Does Universal Credit show on your credit report?

Like all types of income, Universal Credit does not show on your credit report. So whether you’re retired, in work, unemployed, or on benefits, lenders won’t be able to see this information.

However, when you apply for finance, lenders will usually ask for proof of income as well as permission to access your credit file. This helps them to build an overall picture of your finances. They want to make sure that you can afford the monthly repayments without putting you in financial difficulty.

So, although Universal Credit doesn’t show on your credit report, lenders will still need to check your income before they agree to lend you money.

Does Universal Credit affect your credit score?

Universal Credit doesn’t directly affect your credit score, but there may be some indirect implications (more on that below).

Your credit score is your creditworthiness shown as a figure on your credit report. It gives lenders an indication of how responsible a borrower you are, and how risky it’d be to lend you money (based on your past financial behaviour). 

You can find out your credit score by contacting the three main credit reference agencies in the UK: Experian, Equifax and TransUnion. You can also check your full report for free using our member-only platform, CredAbility.

Read on to find out what is considered a ‘good’ credit score in the UK and 10 factors that can affect your score.

Can you get finance on Universal Credit? 

When you apply for a loan or credit card, the lender will use their own criteria to assess the applications. They’ll usually take a number of factors into consideration, such as your income and existing debt, for example. 

Generally speaking, if you have a strong credit score, good credit history and a comfortable income, then claiming Universal Credit shouldn’t directly affect your chances of getting finance. 

However, some lenders specialise in providing finance to those with bad credit or low incomes. Just bear in mind that there are no guarantees of approval, as minimum income thresholds will still apply. Also, you may face higher interest rates if you have a poor credit history. 

Will you be accepted for finance?

Before you make any applications, it’s a good idea to use an eligibility calculator to find out the likelihood of getting approved. This tool won’t affect your credit score or show up on your credit report, so you can use it as often as you need to. 

How can you improve your eligibility?

You may prefer to wait until your financial situation improves before taking out credit. That way you should have access to better deals. To help improve your score, you can::

• Fix any mistakes on your credit report 
• Set up direct debits to ensure you don’t miss a bill payment
• Clear or lower your existing debt
• Register on the electoral roll
• Cut back on spending to improve your affordability

To read more, check out 45 ways you can improve your credit score.