You have been told you can never build a good credit score. You have probably tried to apply for something once, got rejected, and assumed that was just how it would always be.
Your benefits will never show up on any credit file. The lenders do not see that you claim benefits. They only care if you make your payments on time, every time. A low fixed income does make this process slower, but not impossible.
The very first thing you need to do is find out exactly where you stand right now. You almost certainly have no score at all, and an empty file is actually worse for lenders than a small bad mark.
You need to check all three credit agencies. They all hold completely separate data, and a lender could check any one of them when you apply for something. You can use Credit Karma for TransUnion data, ClearScore for Equifax, and open a free Experian account.
Extra things you should know:
Registering on the electoral roll will add a minimum of 50 points to almost all credit scores, and for people starting from an empty file, it is often closer to 80 points. You do not have to vote. You do not have to be a British citizen. You just have to be legally resident in the UK.
You can register even if you live in temporary accommodation, even if you live in council housing, even if you have no formal tenancy agreement. Council housing counts as a permanent address for this purpose, no exceptions.
Additional notes:
|
Common Credit Building Mistakes And Their Impact |
|
|
Mistake |
Impact On Score |
|
Multiple applications in short time |
-20 to -50 points per search |
|
Missing minimum payment |
-100 to -150 points |
|
Using 100% of credit limit |
-30 to -60 points |
|
Closing oldest account |
-20 to -40 points |
|
Cash withdrawals on credit card |
-10 to -30 points |
|
Not registered to vote |
Prevents +50 boost |
|
Payday loan application |
-50 to -100 points |
Most people on ESA already have a bank account, but almost no one has the right one for building credit. You do not need a fancy current account, you do not need rewards, you do not need an overdraft. You need a basic bank account.
There is no credit check to open a basic bank account. You can be approved even if you have old defaults, even if you have a CCJ, even if you have been rejected for every other bank account. They have no fees, and you cannot accidentally go overdrawn.
Do not open multiple accounts in a short space of time, as that will hurt your score. Have your ESA and Housing Benefit paid into this account. Keep at least one pound in it at all times.
After three months of running this account cleanly, lenders will start to see you as stable and reliable. You can also apply for loans like loans for people on benefits. This also builds trust in the lenders to lend to you. This is why your application gets approved despite having benefits.
Additional notes:
This is the single most underused tool for people claiming Housing Benefit. Rent reporting services change that. Rental Exchange will report the full Housing Benefit element of your rent completely for free.
CreditLadder and Canopy will report your full rent payment. This works for private rent, council housing, social housing and even most temporary accommodation. Some housing associations will even sign you up automatically if you ask.
The late payments are never reported, only the on-time ones. It takes around three months for the first payments to show up on your file, and after six months, most people see an increase of between 60 and 90 points. The lenders give more weight to consistent rent payments.
Additional notes:
With a good credit builder loan, the direct lender puts the money into a locked account that you cannot access. You pay back £10 or £15 a month for 12 months, and at the end you get all of the money back, minus a very small amount of interest.
You can apply for loans for people on benefits. This is easier to get approved for, and this is why you should improve your credit without any hassle. The direct lenders will approve by seeing your income proof, benefit claims, and your intention to build credit. They might offer interest rates more than normal ones.
Do not take one for more than £20 a month. Do not take one for longer than 12 months. Do not miss a single payment. You can add between 80 and 120 points to your score over 12 months if you do this correctly.
Additional notes:
The old debts fall off your credit file completely after exactly six years, no exceptions. Paying an old debt will not remove it from your file. But a settled debt is better than an unpaid default.
You do not have to pay it in full if you have a debt that is less than six years old. Most creditors will accept a full and final settlement of between 30% and 50% if you offer it as a one-off payment.
Never ignore a CCJ. If you pay a CCJ in full within 30 days, it will be removed from your file completely, as if it never existed.
Additional notes:
You can build a solid, acceptable credit score in around 12 months, following the steps laid out here. You will never have to borrow money you cannot afford to pay back. You will never have to stop claiming your benefits. None of these steps will affect your claim in any way at all. At the end of this process, you will have choices.
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