Your credit score is really important when applying for any form of loan or credit. It can be harder to get a car on finance when you have a poor credit score because lenders may be worried they won’t get their loan back on time and in full. If you’re in a position where your credit score is low, but you want to get a car on finance, the guide below looks at the top ways in which you can increase your credit score in the run up to a finance application.
How does a bad credit score affect your ability to get a car on finance?
It’s worth keeping in mind that no finance lender can guarantee you a car finance approval and you will need to meet the lenders individual criteria first before you could receive an acceptance. You could use a car finance eligibility checker to see if you qualify for finance first. A bad credit score usually indicates that you have missed payments in the past or have high levels of existing debt and may not be trusted to pay future loans back or may not be able to afford to take on any more finance. If you’re in this position, it can be a good idea to work on your credit score a few months before you want to get a car as rebuilding new financial habits can take time.
How to increase your credit score:
1.Check your credit file for mistakes.
The first place you should start is with your credit report. It’s important to know the information that is listed on there and the factors that could be negatively impacting your score. You should make sure all your information listed on your report is accurate and up to date. If not, misinformation such as your current living address can be impacting your score. It’s also important that your credit report matches the information you put on your car finance application to help verify that you are who you say you are and avoid any fraudulent applications in your name.
2.Make all payments on time.
Making payments on time and in full can have the biggest positive impact on your credit score. Missed or late repayments on your current finances can put future lenders off as you are more likely to default on any future loans too. Lenders take a risk when they loan you money for a car and can decline you if they think you can’t be trusted to stick to the rules of your finance agreement or can’t budget for car finance effectively. You can build new financial habits and increase your score by making all your current payments on time and in full.
3.Build a credit history.
Many people assume no credit history means you will have a good credit score. However, no credit loans can be harder to obtain as it may mean a bad credit score. This is because lenders can’t predict what type of borrower you will be if you’ve never had any evidence of previous credit. Building a credit history doesn’t have to hard and it can be as simple as having a mobile phone contract in your name and meeting the repayment each and every month. Alternatively, you could consider a credit building credit card and make small purchase each month and then clear the payment on time and in full.
4.Keep your credit usage low.
The credit utilisation ratio is a tool used by lenders to assess how much your available credit you’re using. If you’re maxing out your credit limits it can out lenders off as they may think you’re already struggling with the current credit you owe. It is recommended that you only use half of your available credit. For example, if you have a credit limit of £1000 on a credit card, you should only spend around £500 and try to clear it as soon as you can.
5.Don’t open any new credit accounts.
Whilst you’re trying to better your credit, it can be a good idea to avoid opening any new credit accounts. Your credit score considers how much debt you currently have and the number of accounts in your name. It can be a good idea to limit how much credit you take on whilst trying to improve your credit score.