Does Universal Credit Affect Credit Score

Does Universal Credit Affect Credit Score

Universal Credit is a financial lifeline for millions of people across the UK, designed to support those on low incomes, out of work, or unable to work. But if you’re claiming Universal Credit or considering applying, you might be wondering whether this will show up on your credit report or affect your credit score.

The good news is that claiming Universal Credit does not directly affect your credit score. However, the financial circumstances that often lead someone to claim benefits can indirectly influence how lenders view your creditworthiness. In this article, we’ll explain what information credit reference agencies actually see, how lenders assess affordability, and what steps you can take to protect or improve your score while on Universal Credit.

What Is Universal Credit

Universal Credit is a monthly payment from the UK government that helps people with living costs. It replaces several older benefits, including Jobseeker’s Allowance, Housing Benefit, and Tax Credits. It’s paid by the Department for Work and Pensions (DWP) and is available to people who are:

• On a low income

• Out of work

• Unable to work due to health or caring responsibilities

Universal Credit covers essential living expenses, including rent, and the amount you receive depends on your income, savings, and personal circumstances.

Does Universal Credit Appear on Your Credit Report

No. Universal Credit does not appear on your credit file, and credit reference agencies (Experian, Equifax and TransUnion) do not receive information about your benefit status. This means:

• Your credit report won’t show that you receive Universal Credit

• Your score won’t automatically drop if you claim benefits

• Other lenders cannot see your benefit history

Credit reports focus on how you manage credit – including credit cards, loans, mortgages, utility bills, and mobile contracts – not your source of income.

Can Lenders See That You’re on Universal Credit

Lenders can’t see directly whether you’re claiming Universal Credit, but they can ask for proof of income during credit applications. If you’re applying for a loan, mortgage or finance agreement, they may request:

• Recent bank statements

• Payslips or benefit award letters

• Details of other income sources

If your income is mostly or entirely from Universal Credit, some lenders may take a more cautious approach. This doesn’t mean you’ll be automatically rejected, but it could affect how much you’re offered or the interest rate applied.

How Universal Credit May Affect Your Credit Score Indirectly

While Universal Credit itself doesn’t change your credit score, the financial pressures that often accompany a reduced income can have knock-on effects, such as:

1. Missed payments
If you fall behind on bills or repayments, these will appear on your credit file and can significantly reduce your score.

2. Increased reliance on credit
Using credit cards or overdrafts more often due to low income can lead to high credit utilisation, which can lower your score and suggest financial stress.

3. Debt build-up
If you take out payday loans, unsecured borrowing, or fall into arrears, this can damage your credit profile, even if you’re repaying Universal Credit advances or budgeting loans on time.

4. Use of Buy Now Pay Later
Services like Klarna or Clearpay may feel like helpful tools, but missed payments while on a tight budget can be reported to credit agencies and hurt your score.

What About Budgeting Loans or Advances from DWP

The DWP may offer Budgeting Advances or Budgeting Loans to help with one-off essential costs, such as buying appliances or covering rent deposits. These are repaid via deductions from your Universal Credit payment.

These loans:

• Do not appear on your credit file

• Do not affect your credit score

• Are not shared with credit reference agencies

While they won’t help build your credit history, they also won’t harm it — provided you keep up with any other financial obligations.

Real-World Example

Sophie, 35, lost her job during a redundancy round and claimed Universal Credit while she looked for work. She used her credit card more often and missed one payment. Although Universal Credit didn’t affect her score, the missed payment did — causing a drop of 80 points.

Meanwhile, Jack, 29, also claimed Universal Credit but kept up with his minimum payments and bills. He used free budgeting tools to track his spending and his credit score stayed stable, even improving slightly over time thanks to consistent repayments.

How to Protect or Improve Your Credit Score on Universal Credit

If you’re claiming Universal Credit, here are practical ways to keep your credit score healthy:

• Always pay at least the minimum on credit cards and loans

• Avoid missed payments by setting up direct debits or reminders

• Use credit carefully – aim to stay under 30 percent of your credit limit

• Check your credit report regularly for errors or fraudulent activity

• Register on the electoral roll, which helps confirm your identity

• Avoid multiple credit applications in a short period

• Speak to lenders early if you're struggling – many offer support plans

Free tools like ClearScore, Credit Karma and Experian allow you to track your credit score and offer tips to improve it.

Can You Get Credit While on Universal Credit

Yes, but options may be more limited. Lenders are primarily concerned with:

• Your ability to repay

• Your credit history and behaviour

• Your income and outgoings

If you have a good credit history and are borrowing modestly, some lenders may still approve you. However, others may consider you higher risk due to reduced income and affordability concerns.

You might also be offered:

• Lower limits

• Higher interest rates

• Guarantor loans, though these can be risky

• Specialist lenders catering to people on benefits

Final Thought

Universal Credit does not directly affect your credit score, nor does it appear on your credit report. But your financial situation while claiming it — including how you manage bills, credit and debts — can still influence your score significantly.

Maintaining a good credit score while on Universal Credit is entirely possible. It requires careful budgeting, timely payments and avoiding high-risk borrowing. If you're struggling, seek support early and make use of the free financial advice and tools available to help you stay on track.