When you arrive in a new country, setting up your personal finances can be challenging. Fortunately, things have gotten a little easier in the past few decades, and it’s relatively straightforward to set up your finances in the UK. However, when it comes to loans, it’s still difficult for foreigners to apply for credit. With that in mind, let’s take a look at what you need to know about applying for your first loan in the UK.
Can you get a loan if you’ve just come to the UK?
Typically, you can’t get a loan if you’ve just arrived in the UK. This is because most lenders want to see proof that you have a good credit history. One of the key determinants of your credit score is how long you have been in the UK, which rules you out. Also, most mainstream lenders require some simple information about you, including proof of address. So, you might have to wait six months or so before applying for a UK loan.
What credit score do you need for your loan application to be approved?
Your credit score indicates to lenders how likely you are to pay back the money that you borrow from them. Lenders usually only want to give money to people who have a track record of repaying money in the UK and turn to UK credit agencies to find out about your credit history. If you’ve only just moved to the UK, you probably have a very thin score or no score at all. As such, most UK lenders won’t offer you money until you have built up a credit history in the country.
What if my credit score is good in another country?
Unfortunately, your credit score is not internationally recognised, and it doesn’t follow you where you go. As such, lenders will not consider your credit history anywhere other than in the UK. Therefore, you need to build up your UK credit score if you want to borrow money here.
How can I improve my credit score?
As a new arrival in the UK, there are some simple steps you can take to improve your credit score, including:
- Register to vote.
- Put your household bills in your name and pay them on time.
- Open a bank account in the UK.
- Check your credit file to track your progress.
What loans are available to foreigners in the UK?
Very few mainstream lenders offer loans to new arrivals in the UK. Koyo Loans offers credit to people who have been in the UK for at least twelve months, but other lenders require proof of residence for longer than this. However, applying for a loan isn’t the only way to access credit. You might be able to access a credit card when you open your bank account, even though it will initially come with a high-interest rate. Provided you pay a credit card off on time, it’s a good way to build up a credit score in the UK.
How can Open Banking help foreigners apply for credit?
Some lenders use Open Banking to securely view bank account data, which enables them to make a more informed decision regarding your credit application. Instead of relying solely on your credit score, Open Banking lenders consider your income and outgoings when determining your creditworthiness. So, if you’re struggling for approval from traditional lenders, consider an Open Banking lender as a viable alternative.
What happens if your loan application is rejected?
When you apply for a loan in the UK, the lender might perform what is known as a “hard” credit check. In other words, it will show up on your file and cause your credit score to dip. If you apply too many times in a short period of time, it will have a negative effect on your score, which will harm your chances of credit approval in the future.
So, if you’re a new UK resident, it’s important that you begin by building your credit file. Register to vote and start paying your bills on time from a UK bank account. You can then apply for a credit card and make sure you pay it back on time. Then, after 6-12 months, you might be able to borrow money from an Open Banking lender.
Head over to the Debt Consolidation Loan Calculator on the Koyo Loans website to find out more about getting a loan in the UK.