Does universal credit affect credit score?

No, Universal Credit doesn't affect your credit score. It supplements your income, whereas credit scores assess your debts and repayment ability. Since Universal Credit is a benefit you receive, not a debt you owe, it doesn't appear on your credit report. Credit agencies focus on your borrowing history and repayment habits, not on government assistance you receive. So, claiming Universal Credit won't impact your creditworthiness in the eyes of lenders.

Will moving to Universal Credit affect you? Yes, but not like a loan would. Universal Credit provides money; it doesn't lend it.

Claiming Universal Credit isn't the same as entering into credit agreements like mortgages, credit cards, or personal loans. You don't have to repay it, so it doesn't impact your credit score. It's extra financial support from the government for those who are eligible.

What is universal credit?

Universal Credit is a benefits system set up by the UK government to support individuals and families with low or no income. Introduced under the Welfare Reform Act, it replaced six other benefits:

• Child tax credit
• Housing benefit
• Income support
• Income-based jobseeker’s allowance
• Income-related employment and support allowance
• Working tax credit

If you're of working age, live in the UK, and meet the criteria, you can apply for Universal Credit. To qualify, your total money, savings, and investments should be under £16,000. The amount you receive isn't fixed; it depends on your financial situation.

Universal Credit provides essential support to thousands of families across the country. However, it's important to understand its direct and indirect impacts.

Will universal credit appear on credit report?

No, Universal Credit won't appear on your credit report for the same reason it doesn't affect your credit score. Your credit history records money you've borrowed and repaid. Lenders reviewing your report will only see your past and current debts. This borrowing history doesn't show your full financial situation, so it's not the only information they consider during an application.

If you're hoping to hide that you're claiming benefits, we have some bad news. Lenders will still know because they ask for proof of income, which includes Universal Credit. However, they usually don't mind where your income comes from as long as it's stable and legitimate.

Is universal credit bad for you?

Usually, no. Universal Credit helps by topping up your wages and even offers work coach support to help you find and keep a job. It doesn't damage your creditworthiness in any way because financial support and debts aren't connected.

The only time Universal Credit appears on your car loan application is when you provide income information. There's nothing bad about that.

Do you have to pay back Universal Credit?

You don't need to repay your regular monthly Universal Credit payments. Exceptions apply depending on your circumstances.

The exceptions are:

• Overpayments due to misrepresentation: If you've been overpaid because you misrepresented or failed to disclose certain details about your financial situation, you'll need to repay any overpayments. More information on benefit overpayments is available on the GOV.UK.
• Universal Credit advances: If you've received a Universal Credit advance to help manage your living costs until your first payment arrives, you'll need to repay it. For further guidance on advances, visit the GOV.UK.

In both cases, the money you owe will be deducted gradually from your future Universal Credit payments.

If you need further assistance, consider contacting a not-for-profit debt advice charity such as StepChange.

Can you get car finance on universal credit?

Yes, you can get approved for car finance even if you claim Universal Credit. Many reputable lenders understand that everyone's circumstances differ and that some people's income includes benefits. Lenders might view you as a higher-risk customer due to a lower credit score, but you're not disqualified from obtaining finance. By shopping around and obtaining multiple quotes, you'll discover you have options.

The real obstacle isn't that you're receiving a means-tested benefit but how much you earn. Low income is the primary reason why loan applicants get rejected. If you can't secure enough funds through traditional sources like a full-time job, lenders may see you as a less desirable borrower. You might still get approved, but the terms could be less favourable.

How can you improve your eligibility?

Let’s finish on a bright note! Here are a few tips to increase your appeal among potential lenders:

• Keep your credit score as high as you can
• Handle your existing debts reliably
• Save up for a substantial down payment
• Avoid hard credit checks
• Consider singing a guarantor
• Register on the electoral roll
• Get pre-approved for car finance

Contact a reliable car finance company

Will Universal Credit affect your credit score? The short answer is no. However, it's a bit more complex than a simple yes or no.

Receiving Universal Credit doesn't imply you're irresponsible with your debts. The real concern might be low income, which lenders use to assess your reliability as a borrower. So, don't refuse Universal Credit just because you're worried about loan eligibility—receiving benefits adds to your income and improves your financial circumstances.

Understanding what builds a good credit history is crucial. By taking the right steps, you'll secure an affordable car finance deal. Reach out to us at Carplus to learn more and get behind the wheel in no time.