Does Universal Credit affect your credit score?
Being on Universal Credit does not have a direct impact on your credit score. But the reasons you are on Universal Credit – such as being unemployed or on a low income – will affect your ability to borrow money at competitive interest rates.
4 min read
In a nutshell
- Universal Credit is a state benefit which is replacing a number of legacy benefits including Housing Benefit and Jobseeker’s Allowance.
- Applying for, or receiving, Universal Credit will not affect your credit score.
- Being unemployed or on a low income could affect your chances of being accepted for credit, as you may not meet lenders’ affordability requirements.
- You might be able to borrow money while on Universal Credit, but you are likely to be charged higher interest rates.
What is Universal Credit?
Universal Credit is a UK state benefit to help people on a low income. It was introduced in 2013 as a single monthly payment to replace a number of ‘legacy benefits’.
To get UC you need to:
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live in the UK
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be aged between 18 and State Pension age
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have £16,000 or less in savings and investments
How much Universal Credit you can get will depend on your circumstances and your income. You can claim Universal Credit if you are in work but have low earnings. Additionally, if you work full-time and have children in childcare, you can claim back some costs through Universal Credit.
Despite what the name suggests, Universal Credit is not a form of credit. It’s a state benefit that you don’t have to pay back.
You can apply for Universal Credit online on the Government website.
Does applying for Universal Credit affect your credit score?
No, applying for Universal Credit does not affect your credit score.
When you apply for Universal Credit, you are not applying to borrow money, and no credit checks are carried out.
The Department for Work and Pensions (DWP) won’t check your credit file as part of your application for Universal Credit. However, you will be asked about savings and investments. If you have more than £6,000 in capital, this will affect how much Universal Credit you get. If you have more than £16,000 in savings and investments, you won’t be able to get Universal Credit.
Universal Credit and your credit score
Your credit score is based on your ability to handle credit and payments. Your credit report shows your loans, debts and other credit agreements (such as household bills) and how you manage your finances. Your credit score is calculated by credit reference agencies using this information.
How much income you have, and the source of income (such as employment or benefits) is not shown on your credit report and will not affect your credit score.
How does receiving Universal Credit affect my credit score?
Being on Universal Credit or other benefits doesn’t affect your credit score directly.
However, if you are struggling financially, you might miss debt repayments or fail to pay household bills, such as energy or broadband, on time. Defaults and missed payments will have a negative effect on your credit score.
Does Universal Credit count as income for a mortgage?
Although receiving Universal Credit does not affect your credit score, it could affect your ability to take out a mortgage.
When you apply for a mortgage, the lender will ask about your employment status and income. If you are unemployed, this is likely to affect your mortgage application.
If you are working but on a low income and claiming Universal Credit, your income may not be sufficient to pass lenders’ affordability checks.
If you are turned down for a mortgage, or other credit, due to a low income, try to avoid making another application for 6 months. Too many credit applications in a short space of time may cause your score to dip.
Can I claim Universal Credit if I have a mortgage?
Your Universal Credit claim can include a claim for help paying your housing costs.
If you have a mortgage, you can apply for Support for Mortgage Interest payments (SMI). SMI is a type of loan designed to help you pay the interest on your mortgage (but not the capital).
You can usually get SMI starting from three months after you claimed Universal Credit for interest payments on mortgages up to £200,000. You will need to repay the SMI loan – plus interest – when you sell your home or if you transfer ownership to someone else.
Can I get a credit card on Universal Credit?
Being on Universal Credit probably won’t stop you from getting a credit card.
However, as with a mortgage, the lender will ask about your employment status and income.
Being on a low income is likely to stop you being eligible for the best credit card deals. But you might be offered a card with a low credit limit and higher-than-average interest rate.
If you have a poor credit score, you can apply for a credit building credit card. This type of credit card has a high APR but if you borrow a small amount of money regularly and pay your credit card in full each month (so you don’t pay any interest), you can improve your credit rating.
How to improve your credit score while on Universal Credit
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Pay any debts on time and set up Direct Debits for household bills so you don’t miss any payments
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Be registered on the electoral roll at your current address
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Pay down debts where possible and close any credit accounts you no longer use
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Check your credit report(s) for mistakes and signs of fraud
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Join the Rental Exchange Initiative
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Sign up to Experian Boost. This is a free tool that builds your Experian credit history by taking previously unreported bills such as entertainment subscriptions and council tax into account.
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