Does Universal Credit Affect Your Credit Score?
With so many people suffering drops or loss of income due to the Covid-19 pandemic, more people than ever before are claiming Universal Credit.
Whilst establishing their entitlement to this benefit, an applicant can rightly be concerned about the impact such a benefit may have on their previously unblemished credit score.
What is Universal Credit and how does it work?
Universal Credit is a Government-run benefit that aims to help people who are struggling to pay their everyday living costs and is paid monthly (or twice a month to certain recipients in Scotland).
Universal Credit has replaced six other types of benefits and you may be entitled to this benefit if you’re out of work or on a low income.
Universal Credit can encompass any of the following benefits into one single monthly (or bimonthly) payment:
Tax Credits (Child and Working)
Income-based Jobseeker’s Allowance (JSA)
Income-related Employment and Support Allowance (ESA)
Who can get Universal Credit?
You might be able to get Universal Credit if you:
- are on a low income or out of work
- are 18 years old or over (some exemptions for 16 and 17 year olds)
- are under State Pension age
- have savings of less than £16,000
- live in the UK
- are not in full-time education or training (some exemptions apply)
To find out what benefits you can claim, head over to the GOV.UK's website where they have three different types of benefits calculator you can use, anonymously and for free, to check your eligibility.
In addition to Universal Credit benefit payments, should you have a specific cost you need to cover (like a broken cooker) and have been in receipt of Universal Credit, ESA, Income Support, JSA or State Pension Credit for 6 months or more, you may be entitled to a Universal Credit loan known as a budgeting advance.
Or, if you’re not in receipt of Universal Credit but are in receipt of Income Support, JSA, ESA or Pension Credit, you could be entitled to a budgeting loan. Click on the links to check your eligibility and to see how to apply.
If I get Universal Credit will my credit score be impacted?
No, being in receipt of Universal Credit does not affect your credit score as it is like any other income you receive that is not part of credit score analysis.
However, to receive Universal Credit, you will be on a low income and you may not, therefore, earn enough money to obtain most types of credit.
Does Universal Credit show up on your credit report?
No, a credit report is about your ability to meet your financial commitments and does not include any income sources.
Like all other types of income, Universal Credit does not show on your credit report. So whether you’re in full-time or part-time work, unemployed, retired or on benefits, lenders won’t be able to see this information when they run a credit check.
When will Universal Credit affect me?
When you apply for a mortgage, credit card or personal loan, a lender 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 and check your affordability.
They want to make sure that you can meet the monthly repayments without putting you in financial difficulty. If you are in receipt of Universal Credit, it also gives them an indication of your actual income.
So, while Universal Credit doesn’t show on your credit report, lenders will still need to check to see how much you earn before they agree to lend you money.
Where possible, it’s always best to get preapproval for a loan or credit card before officially applying for credit to avoid any hard checks being made by a lender that will be recorded on your credit file.
Will I still be able to apply for a loan or credit card?
Yes, you can still apply for a loan or credit card when claiming Universal Credit or any type of benefit, but because of your reduced income, you will struggle to succeed in getting a loan if your income doesn’t meet the lender’s income threshold.
It’s always best to run a preliminary check online using a loans eligibility calculator as doing so will not affect your credit score and will give you a good idea of your chances of success.
You should also check your credit rating and report for any anomalies. You can do so with all three main credit reference agencies, via checkmyfile.com. Sign up today to receive a 30-day free trial - after this, a monthly fee of £14.99 will apply, but you can easily cancel your subscription if you do not wish to pay for Checkmyfile's useful services.
If you discover that your credit score is low, check out our helpful guide to boost it back up again: How to improve your credit score immediately.
Is Universal Credit worth it?
Whilst Universal Credit has proved to pay out less than some collective single benefits, if you’re not currently in receipt of any benefits and are entitled to it, then it is most definitely worth applying for rather than running up insurmountable debt.
However, if you’re already in receipt of certain benefits, you can sometimes receive less by moving over to Universal Credit and worse still, some benefit payments like Tax Credits can stop the minute you apply, regardless of your application’s success.
So if you’re in receipt of existing benefits, it’s always best to use a benefits calculator to check whether you’ll be better off before making a claim.