by Annelies Van de Velde

A common problem for people moving to the UK is that it is hard to get credit or to borrow money. This is due to the lack of a UK credit history, because you can’t transfer your credit rating from your home country to the UK. Without a credit history, lenders won’t have very much information to determine whether you can manage credit responsibly and may therefore class you as high risk, making them reluctant to lend to you. The result is that you may find it hard to get credit cards, loans or mortgages, stopping you from achieving your goals. Luckily, there are a number of easy steps you can take to build up a good UK credit rating. Read this guide on building up some positive credit history and take your first step towards financial freedom in the UK.

How Credit Rating Works

When you apply for credit with a company in the UK, it will (with your consent) check your UK credit score through a credit reference agency of which the three main ones in the UK are Experian, Equifax and Call Credit. These companies hold your credit report, in which the information about your credit status comes from banks, finance companies, credit card suppliers, department stores, etc… If you, for example, miss any payments or go bankrupt, this will all be filed on your credit report. As this report shows how you have repaid credit in the past, lenders will take it as an indication of how you will repay credit in the future. As you will have little or no record of repaying credit in the past in the UK, lenders will find it harder to determine whether you will be a risky client or not.

The better your credit history, the wider the range of credit products you’ll have access to and the better the rates. A poor or small credit history will limit your choice and usually means you’ll have to borrow at higher rates, but your credit history can be built up and improved over time.

Some Essential Information

Getting a UK address

Most lenders won’t give you credit without proof of a UK address, so finding somewhere to live is an essential first step to qualify for credit in the UK. You will almost always need to show a proof of address when opening a bank account as well.

Employment

Many lenders like to see proof of a regular income, although the importance of this differs for each lender. Therefore, if you are a homemaker, part-time worker, temporarily unemployed, self-employed or have an irregular income, you might find it hard to obtain credit in the UK. Try to secure employment before coming to the UK as it will make things such as finding a home and opening a bank account much easier.

Opening a UK bank account

Although this is not absolutely essential to apply for credit, it’s advisable you open a bank account in the UK as it might make you more attractive to lenders, means you can pay bills by direct debit, receive your salary and transfer money abroad. Opening a UK bank account can be a difficult process for foreigners, so one method is to open an account with a bank in your home country that also has branches in the UK, prior to you moving here. Securing employment before you move to the UK is also a good idea, because banks like to see a letter of employment when you open an account with them.

Six Easy Steps to Build up and Manage your UK Credit Rating

Step one: Register on the electoral roll

The electoral roll is a list of the names of all people registered at an address who are entitled to vote. In the UK, you can only register on the electoral roll if you already have a UK address and you are a citizen of the Republic of Ireland, the Commonwealth*, the European Union or Britain. Many companies use the electoral roll for verification purposes in order to combat identity fraud. To register on it, you will generally need to complete a voter registration form and return it to the local council where you have your UK address. Visit the local government website to find out more.

As your credit report also contains a record of where you live now and have lived previously, you should always update any companies you have credit with of your new address and ensure that for each property you get registered on the electoral roll. Also, try not to move too often as this could also have a negative impact on your credit score.

Step two: Stop applying for credit you won’t get

Not everyone knows this, but every time you make an application for credit, a credit search is conducted and this is recorded on your credit report. If you have applied for credit in the UK and been rejected several times already, your UK credit score may be getting worse instead of better. Therefore, stop applying for lots of credit and only apply for credit you are likely to get. This may mean borrowing at higher rates first to build up a credit history.

Step three: Check your credit report

If you have been in the UK for some time, you may have already built up some credit history and it is a good idea to check your report before you apply for any more credit. The information on your credit report will show you the areas that you can improve on and also means you can check for any errors that might be on your report. Even a simple mistake such as a wrong present or past address can lead to you being judged on someone else's credit history. If you do spot a mistake, just write to the agency you obtained your report from and request it is changed. If the credit agency refuses to make the change, you can request them to add a Notice of Correction stating the mistake.

You may be able to obtain a copy of your credit report for free from Credit Expert, click here for more information.

Step four: Create some positive credit history

This is where you can get creative. Whether you have no credit history, or just a poor rating, you can start to turn things around by showing you can manage credit responsibly. Once you’ve moved to the UK, there are a number of easy steps you can take to do this:

1. Open a higher interest credit card for which you are more likely to be accepted. Make sure you manage it properly to help rebuild your credit rating. This means repaying every month in full, spending a little each month for six to twelve months. For most credit cards, this method will only work if you just use your credit card for purchases. It is important to make sure you make your payments on time and stay within your credit limit, otherwise it will have a negative effect on your credit rating.

Here are some examples of higher interest cards – rates correct at time of writing but please check with each provider:

- The aqua Card: Typical 35.9% APR variable and up to 51 days interest free credit on purchases if you pay off your balance in full and on time each month
- The Capital One Classic: Typical 34.9% APR variable
- The Barclaycard Initial: Typical 27.9% APR variable

2. Put bills in your name (where possible) and pay them by direct debit.

3. Open a couple of store cards as these are usually also easier to get than standard rate credit cards, but ALWAYS pay them off in full every month and you’ve got another way to show you can handle your finances responsibly. Don’t use this method if you are bad at managing your finances as missing payments on store cards may have a negative impact on your credit rating, the opposite of what you’re trying to achieve by using them.

Step five: Time your applications wisely

Applying for lots of credit in a short space of time and being rejected is not good for your credit rating. You can try leaving between 3 and 6 months between applications to help repair your credit rating, but it may take longer. Things such as mobile phone contracts and car insurance can also count towards this.

Step six: Curb your card spending

This is the most obvious step of all, try to minimise any debt on your cards. As a rule of thumb, you should try to keep the debt on a card under 30% of your credit limit.

*The independent member states of this intergovernmental organisation are:

Antigua and Barbuda, Australia, The Bahamas, Bangladesh, Barbados, Belize, Botswana, Brunei Darussalam, Cameroon, Canada, Cyprus, Dominica, Fiji Islands, The Gambia, Ghana, Grenada, Guyana, India, Jamaica, Kenya, Kiribati, Lesotho, Malawi, Malaysia, Maldives, Malta, Mauritius, Mozambique, Namibia, Nauru, New Zealand, Nigeria, Pakistan, Papua New Guinea, Samoa, Seychelles, Sierra Leone, Singapore, Solomon Islands, South Africa, Sri Lanka, St Kitts and Nevis, St Lucia, St Vincent and the Grenadines, Swaziland, Tonga, Trinidad and Tobago, Tuvalu, Uganda, United Kingdom, United Republic of Tanzania, Vanatu, Zambia.

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written by copywriter Annelies Van de Velde.
For more information please see Annelies' linkedIn profile at:
http://www.linkedin.com/in/anneliesvandevelde