Your credit score is really important when it comes to any form of finance or loan. Car finance lenders will want to know how you’ve handled your previous credit, and your credit score will then reflect this. A higher score usually shows a long history of being able to meet payments on time and only using a small amount of credit at once. It’s a common misconception that having bad credit means you can’t get finance, but it can make it harder to get approved and may limit your options. But how do you know what your credit score should be for car finance?
How to check your credit score?
One costly car finance mistake drivers can make is to not check their credit before finance. A great financial habit to get into is to keep on top of your credit score and check its growth regularly. It can take time to improve a bad credit score as they are all about future predictions and creating new routines. You can check your credit score for free by using one of the credit referencing agencies in the UK. You can choose from Experian, Clear Score, and TransUnion to get a better idea of where your credit currently stands. Each credit agency has its own scoring system and criteria which can may your score will vary depending on which you choose.
What credit score is needed to finance car?
If the lender performs a car finance soft credit search on your credit file, they will get access to part of your credit report rather than the full report and it won’t harm your current score either. It can be hard to pinpoint one score which qualifies you for car finance. There are a number of reasons as to why. For one, not all lenders score applicants the same and have different numerical scales so it wouldn’t be fair to recommend one score to aim for. Another reason is that your credit score isn’t the only factor which affect approval, you could have a perfect credit but if you don’t meet the other criteria set by the lender, you may not be suitable for finance.
Why is good credit better?
There is a whole load of reasons why good credit score car finance is better for your financial life. When it comes to financing a car, a better credit score can help you get approved easier. This is because you are usually less of a risk to lend to and have a long history of making payments on time and in full. Those with better credit scores usually get access to the best and lowest APR finance rates. They also may be offered more than one finance approval and means they can choose the best deal for their circumstances. Having a better credit score can make car finance cheaper and helps you save money on your next deal.
How to improve your credit score for car finance?
Improving your credit score is all about creating new habits, which can take time and effort, but the benefits are endless! Below are a few factors to take into consideration to help improve your credit score.
Keep on top of all your repayments.
The easiest way to improve your score and show future lenders you can be trusted to pay back your future finance is to keep on top of your current payments. By making all your current bill payments on time and in full and also meeting more than the minimum payment on a credit card each month can increase your credit score over time. Credit scoring is all about future predictions and using your past behaviour to determine which type of borrower you will be.
Reduce how much debt you owe.
Your credit score is calculated by how much debt you’re currently suing. This is called the debt utilisation ratio and having high levels of debt will negatively impact your credit score. Where possible, you should try to reduce how much debt you owe first before taking on anymore. This can mean paying down any credit cards or accounts before applying for any new credit or finance.
Limit your applications for finance.
If you’re struggling to get approved for a car loan, it can be tempting to apply with lots of lenders at once to see how will accept you. However, making multiple applications for finance in a short space of time can harm your credit score. You should try to limit your applications or consider using a car finance broke to help sort your finance as you will only need to apply with the broker the once.