If you’re looking to get a car on finance, you may be wondering how your credit score affects your chances of getting a car and what score is needed in order to get approved. If you have a low credit score, you may have been previously declined car finance or are struggling to find a lender that’s right for you. The post below has been designed to help you understand car finance and credit scores and how to improve your score to help increase your chances if approval.
Why is credit score important to car finance?
When you apply for car finance, you will usually need to undergo a credit check first. It can be possible to get a car with no credit check, however, these types of lenders usually set high interest rates to reflect the level of risk. Car finance lenders usually check your credit first to see how you’ve handled your finance in the past. Missed or late repayment are one of the main reasons why you may have a low credit score and this past behaviour can put off future lenders as you are more likely to default on their loan too.
What credit score do you need for car finance?
When it comes to car finance, there isn’t really a one size fits all credit score to get approved. Different lenders use a different scoring system and each credit referencing agency has their own scale too. What one lender may see as a ‘bad’ score could be ‘fair’ or even ‘good’ to another lender so it’s unfair to compare the scoring system. However, there are many benefits to working on your credit score and having a better score can see easier acceptances, more negotiation power and a better interest rate offered.
How to improve your credit score before car finance:
There are many ways in which you can start to rebuild a bad credit score for car finance. It’s worth remembering though that car finance is never guaranteed and ultimately the final decision sits with the lender. It can be worth taking some time to work on your credit score before you can get approved for car finance.
1. Make payments on time and in full.
One of the easiest ways to help improve your credit score is to stay up to date with your current financial commitments. By meeting all your current payment son time and in full, you can show future lenders that you can be responsible with your money and be trusted to stick to the riels of your finance agreements. If you have bad credit but need a car, it can be worth taking some time to build a credit history if you don’t have one yet.
2. Reduce debt
Your credit score is also calculated but how much debt or credit your currently suing. If you have high levels of debt, new lenders may be put off and think you can’t afford to take on anymore new credit or finance. Having high levels of existing debt can make it harder to make room for more monthly payments so it can be worth reducing as much debt as you can before you start applying for finance to help you get back on track financially. If you’re struggling with your current repayments, you should never miss a payment and instead speak with your lender to see how they can help you.
3. Check your credit report
Many drivers apply for car finance without even know where they fall on the credit score or what’s listed on their credit report. You should get into the habit of checking your score regularly and making sure all the info on your credit is accurate and up to date. Having misinformation on your credit report can be negatively impacting your credit score and if it doesn’t match with the details on your car finance application, lenders may be worried it is a fraudulent application in your name.
4. Remove negative financial links
When you take out finance with someone else, you will become financially linked on your credit reports. If you no longer have any active credit with someone you are financially linked to, it can be best to disassociate yourself from them on your credit file because their low credit score can be negatively impacting your score too. You can do this by contacting the credit referencing agency who provided your credit report.
5. Avoid new credit
When you’re taking the time to work on your credit score, you should try to not open any new accounts or finance deals in the run up to your car finance application. Your credit score also considers how much credit you currently have and how much of your available credit limit you are using so keep credit usage low can be key to keeping your score on the right track.
