In 2013, the Government introduced Universal Credit to replace and combine six benefits. It is now claimed by more than 2 million people in the UK, more than half of which are unemployed. One thing you may be asking, if you’re applying for Universal Credit, is “Does Universal Credit affect your credit score?” This is obviously a concern if you’re looking to borrow money in the near future.
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What is Universal Credit?
Universal Credit is a means-tested social benefit from the UK Government. It’s mostly claimed by unemployed people as a replacement for Jobseekers’ Allowance (JSA). However, it will also eventually be able to be claimed by:
- adults younger than the State Pension age who are having difficulty finding work. This could be because of their long-term medical condition or a disability, as Employment and Support Allowance
- some people who are on a low income, but have a reason for not actively seeking work, as Income Support
- families making less than £42,000 per year, as Child Tax Credit
- people who work and have a low income, as Working Tax Credit
- people who rent and need help affording it, as Housing Benefit
If you fit the criteria and keep the commitments you agree with the government, you may spend the money on anything you like. You do not have to pay the Government back for any money you are given. The main exception to this is if you arrange an advance payment to cover bills. Universal Credit is funded mainly through National Insurance, which every worker making more than £242 a week must pay.
Does applying for Universal Credit affect your credit score?
Yes and no. Universal Credit does not directly affect credit score, because it’s not a commercial loan. So it doesn’t directly impact your credit score.
However, your reasons for applying for Universal Credit might affect your creditworthiness. For example, lenders may be reluctant to lend to you if you are on a low income or unemployed.
Do benefits appear on your credit report?
Your credit report is based on credit agreements, not income. Therefore, benefits won’t show up on your credit report.
However, your employment status does show up on your credit report. Even if you are receiving unemployment benefit, lenders can still find out that you are unemployed from your credit report.
Do Universal Credit advances affect my credit score?
No, Universal Credit advances do not affect credit score.
In the same way that student loans don’t affect credit score, Universal Credit advances are a loan from the Government, not with a commercial lender. Commercial debts are the only things that interest lenders. They don’t care about arrears with the Government.
You should still make sure to pay off advance debts, however. Benefit sanctions can cause financial issues that do show up on your credit report. For example, rent arrears and missed bill payments.
Do benefit sanctions show up on my credit report?
No, benefit sanctions do not show up on your credit report. Tthe Government hands down sanctions, usually as punishment for missing appointments, or failure to repay an advance loan. Since they are not the result of a commercial credit agreement, they don’t show up on your credit report.
However, sanctions can cause problems paying commercial credit arrangements, such as phone bills and utilities. That can show up on your credit report. Try to stay on top of things to keep your finances in good health.