Does Universal Credit Affect Your Credit Score?

The UK’s Universal Credit payment programme helps millions of people, who are struggling financially, with their basic month-to-month living expenses. It helps them feed their families, avoid homelessness, and pay for health-related costs.

Since the start of the pandemic, more families than ever have claimed benefits under the Universal Credit programme. However there has been a growing concern amongst the recipients - does Universal Credit affect credit scores?

Pave is here to answer your burning question. We’ve also compiled a quick five step guide to improving your credit score. Let’s jump straight into it:

What is Universal Credit?

Universal Credit is a means-tested benefit that supports those of working age who are on a low income or out of work. It will eventually replace the six existing legacy benefits:

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

The Department for Work and Pensions will eventually transition all individuals and households currently receiving said benefits and credits to the Universal Credit programme.

Does Universal Credit Affect my Credit Score?

Don’t worry, Universal Credit won't directly affect your credit score. Universal Credit is effectively a form of your income, which has no impact on your credit rating. A credit score, or rating, takes into consideration your credit history, borrowing history, debt repayment history, outstanding debts, and other factors that are more representative of your money management - not where your money comes from.

There is no reason for the benefits you claim to appear on your credit report.

What Does Universal Credit Affect?

So Universal Credit doesn't directly affect your credit score, but can it affect mortgage, loan or credit card applications? Well, claiming Universal Credit will not appear on your credit reports, however it could still impact your ability to get a mortgage, a loan or a credit card. Let’s break this down:

Mortgages

To repeat, Universal Credit doesn't directly affect your credit score. However, receiving Universal Credit signals to lenders that you have a low income and therefore could struggle to make repayments. That could mean you fail to meet their affordability tests.

This doesn’t mean you cannot get a mortgage. It is your financial circumstances at the time that could affect your mortgage application. The chances of your mortgage application getting accepted could depend on different types of financial sources.

Tip: Whilst Universal Credit won't hurt your credit score, a rejected mortgage application will. By checking a bank or mortgage lender's eligibility requirements before applying, you can learn whether you can get a mortgage while receiving Universal Credit and avoid potential damage to your credit score. Learn more about the five quick ways to improve your credit score below.

Credit Cards

While Universal Credit doesn’t directly affect your credit rating, it could potentially reduce your chances of being accepted for loans or credit cards. Financial institutions are less likely to lend credit to low-income individuals or households, and receiving Universal Credit could indicate the latter. You could fail to meet the minimum income requirements and be considered a high-risk borrower.

However, receiving Universal Credit doesn’t automatically mean your loan or credit card application will be denied. Lenders typically care more about your credit report, so a strong history of credit and repayment could go a long way.

Similar to mortgage applications, make sure to check out your bank or mortgage lender's eligibility requirements to learn as much as you can before applying for credit. In doing so you could potentially avoid damage to your credit score. Read about the five quick ways to improve your credit score below.

Five Quick Ways to Improve Your Credit Score

Join the electoral roll. This is seen as a sign of stability to lenders and often used by credit reference agencies to verify your identity. It’s also an easy way to boost your credit score.
Pay your bills on time. Late payments could negatively impact your credit score. Setting up direct debit and standing orders can be a useful way to ensure payments go out on time.
Clear those debts. Pay off any outstanding debt, including credit cards or loans, as soon as you’re able to. Demonstrating a history of paying down outstanding borrowing can boost your credit score.
Clear those debts. Pay off any outstanding debt, including credit cards or loans, as soon as you’re able to. Demonstrating a history of paying down outstanding borrowing can boost your credit score.
Sign up for a credit builder app, such as Pave. The Pave App is the credit builder that helps build credit by reporting monthly payments to major credit agencies. Pave has helped a community of over 300,000 people improve their credit scores. In addition, Pave will help you keep on track of your finances by giving you personalised credit fixes, bill reminders and much more. Sign up & Download the app today.