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If you have a low credit score, you may already be worried about the ability to get a car on finance. Many drivers may already be aware of the affect that credit scores can have on car finance approvals and usually, the better your score is the easier it is to get a car on finance. But what happens when you have bad credit? The guide below looks at the different ways in which you can help to increase your credit score and improve your chances of getting a car on finance.
Why are credit scores important for car finance?
Lenders use a credit check when you apply for car finance to predict the likelihood of you paying your future car finance back on time and in full. Your credit report shows your history of borrowing, the accounts you have open, how much you owe and your payment history. If you have a strong track record of meeting all payments on time and in full and never missing a payment, you will be less of a risk to lend to as you’re likely to continue with this financial behaviour in the future. When you’ve missed payments, made late payments or been declared bankrupt, you are more likely to default on loans in the future or you may have too much debt and simply can’t afford to take on any more credit. In this instance, you may be refused car finance. Not only can a better credit score see easier approvals but it can also help you get a low rate car finance deal which you don’t have to pay as much in interest.
Ways to improve your credit score:
When it comes to car financing, it’s worth knowing that finance is never guaranteed to anyone, and you will need to meet the lenders requirements first before you can get a car on finance. If credit score is the major roadblock to getting a finance approval, the factors below should help you to improve your score over time.
Check your report.
You may be surprised how many people apply for finance without even checking their score and credit report first. Your credit report holds many different pieces of information about you including personal details such as name, date of birth and address history and also details of your financial background. It’s important that when you check your credit report, all your information is accurate and up to date. It’s also important that your information matches when you put on your finance application as it can be hard for lenders to cross refence the information with the report if you information is not up to date.
Pay your bills on time.
One of the easiest ways to improve you credit score is to build new financial habits when it comes to paying on time. If you already have any finance or credit, you should try to make each and every payment on time and in full to show future lenders you can be trusted with your financial deadlines. Getting into the habit of making all payments on time can massively increase your credit score and your chances of approval.
Reduce credit card debts.
Your credit score also considers how much debt you currently owe. Having high levels of existing debt can be negatively impacting your score and limit your ability to take on anymore finance or credit. You should try to clear as much debt as you can before you commit to taking on another loan. Not only will it increase your credit, but it can also make it easier to budget for car finance as you may have freed up some money that no longer goes towards paying off your debts.
Limit the applications you make for finance.
Making multiple applications for finance in short space of time can have a damaging effect on your credit score. If you’ve already been refused by one lender, it can be tempting to apply with as many as possible to see who will accept you, but it can have a more harmful impact on your score. You should try to stick to a soft credit check for car finance over a hard search as they don’t tend to harm your score and won’t be recorded on your credit file either.
Remove any negative financial links from your report.
When you check your credit report, you will be able to see any people you are financially linked to. Becoming financially linked usually happens when you take out a finance deal with someone else such as a joint application or a mortgage. You will be able to see any financial links on your credit report and if you no longer have any active credit with that person, it can be a good idea to dissociate yourself from them on your credit file. If they have a bad credit score it can negatively affect your credit too so it’s best to distance yourself from them.
