Building a good credit score can be a challenge, especially for expats or individuals who have recently started working abroad or moved to another country. In this blog post, I will share my personal journey and the strategies I used to build a strong credit score within my first year in the UK. From leveraging credit reporting services to utilizing credit cards and monitoring my credit history, these steps helped me establish a solid foundation for my financial future. Also, you will come across some referral codes that provide benefits for both you and me. By following the provided links, you can take advantage of these opportunities.
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Current Scores
After spending 1.5 years in the UK, I managed to achieve a credit score of 620 out of 720 with TransUnion and 841 out of 999 with Experian. This indicates a positive progress in building my credit history and reflects my responsible financial behavior during that time.
The Impact of No Credit History
Having no credit history posed a challenge when I wanted to rent a flat. Due to the absence of a credit score and credit history, I was required to pay five months’ worth of rent in advance. It’s worth noting that credit scores and histories are not only necessary for loan applications; they also play a crucial role in the rental process. Without a credit history, securing a rental flat can be extremely difficult, emphasizing the importance of establishing a credit profile.
Besides, one of my friends faced rejection when applying for an internet connection in the UK due to the absence of a credit history, despite having worked in the country for over two years. This highlights the significance of building a credit history, as it can impact various aspects of daily life, including accessing essential services like internet connections.
Boosting Services
As an expat, one of the biggest challenges in building a credit history is the lack of credit references. To overcome this hurdle, I utilized CreditLadder, a service that reports rental payments to credit institutions. While the free version of CreditLadder reports to only one institution, I chose TransUnion to establish my credit profile. On the other hand, you can use its premium version with 5 GBP per month to report your rents to 4 credit agencies: Experian, Equifax, TransUnion and Crediva.
Canopy offers similar free rent reporting service to credit institutions. Besides, you can use both CreditLadder and Canopy. You may consider to report TransUnion from one, and Experian from another.
To further enhance my credit score, I took advantage of Experian Boost. By authorizing Experian to access data from my current accounts, regular payments like Netflix, Spotify, and council tax were factored into my credit score calculation. Since my rent payments were already reported by CreditLadder to TransUnion, this additional boost from Experian helped strengthen my overall creditworthiness.
Experian Boost significantly increased my credit score by 56 points. However, I am unsure about the specific impact of Credit Ladder on my TransUnion score, as it is difficult to determine.
Credit Card
With no credit history, getting approved for a credit card can be challenging. While Credit One rejected my application, while American Express approved me with a generous credit limit. I also used a referral code while applying to AMEX. I believe this increases the chance for approval.
To apply for an American Express card, you need to provide a valid bank account statement as proof of address. Other documents such as a driving license, electricity bill, or council tax are not accepted. AMEX specifically requires a bank statement, and statements from digital banks like Monzo or Starling are acceptable. It’s important to note that statements from non-recognized banks like Revolut or Wise are not accepted because they are not considered legal banks. Therefore, having a bank account is a prerequisite before applying for an AMEX card. I submitted Monzo‘s statement in the application.
American Express is less widely accepted by merchants compared to Visa or Mastercard. In the UK, around 1 out of 10 merchants may not accept Amex, while in continental Europe, this ratio is higher, with 7 out of 10 merchants not accepting it. Despite this, AMEX has a positive perception because the company approved my credit card application despite my lack of credit history.
In my journey, I opted to use the British Airways version of AMEX to accumulate miles, although you might consider a cashback card instead to earn 1% of your expenses. Both options have no annual fee. I am using Chase’s debit card to earn cashback already.
Over the course of 1.5 years, I managed to collect 50,000 points and even obtained a companion voucher, which allowed me to purchase a second ticket for free. With 50,000 points, you can either redeem them for two round-trip tickets to Rome with a minimal tax cost of 1 pound each or use them for a round-trip ticket to New York with a slightly higher tax cost of 100 pounds. This demonstrates the value and flexibility of utilizing points for travel rewards.
It’s worth noting that credit bureaus like Experian and TransUnion provide recommendations for credit cards you are likely to be approved for, which can be helpful when building credit from scratch.
If you have an HSBC Premier account in your home country, you will also have Premier status with HSBC in the UK. This allows you to transfer money between your home country and the UK without any fees or commissions. Additionally, having a Premier account makes it easier for you to obtain an HSBC credit card.
Herein, AMEX reports its statement to TransUnion and Experian but it is not reporting to Equifax. Meanwhile, O2 is asking your score to Equifax whereas. You may have trouble to get an iPhone or switching to contract from O2 because you may have very poor score in Equifax even if you use credit card by AMEX. Personally, I did not have any trouble because my transactions are being reported to Experian by AMEX and Vodafone is asking your score to Experian.
Credit Utilization
Maintaining a healthy credit utilization rate is a crucial aspect of building a good credit score. To ensure this, I was mindful of not exceeding 25% of my credit card limit. If I found myself nearing that threshold, I made advanced payments to reduce the utilization rate.
It’s important to note that keeping the utilization rate above 1% is also recommended to avoid any negative impact on the credit score. So, you should not pay all your debt before the due date of current statement period. Even though you pay your debt early, this behavior will harm your credit score.
Long story short, make some payments in advance if necessary to keep your utilization ration between 1% – 25%.
Mobile Phone
To demonstrate responsible credit behavior, I decided to switch from a prepaid plan to a contract with Vodafone and also purchased an iPhone from them. The monthly payments for the phone over a three-year period were considered a loan, which positively impacted my credit score. This highlights the importance of having a loan and making regular, timely payments.
Address History
Your address history is an essential part of your credit profile. If you frequently change addresses, it may impact your credit history. Opening a bank account with a temporary address, such as an Airbnb room, can result in changes appearing in your credit report for up to five years. Consider waiting until you have a long-term address before opening a real bank account even if it is an online bank. In the meantime, alternatives like Revolut can serve your banking needs where it does not send any information about you to credit bureaus including your address.
Monitoring Credit Reports
Regularly tracking your credit reports from TransUnion and Experian is crucial. These soft checks do not negatively impact your credit score and allow you to identify any inaccuracies or discrepancies. By promptly addressing any issues, you can maintain a healthy credit profile and avoid potential setbacks.
Conclusion
Building a good credit score in the UK as an expat or someone new to the country can be a daunting task. However, by leveraging tools like CreditLadder and Experian Boost, applying for suitable credit cards, utilizing phone contract installments, being cautious with address changes, and monitoring your credit reports, you can lay the groundwork for a strong credit history. These steps helped me establish a positive credit profile within my first year, opening up opportunities for financial stability and future growth.
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