Getting a car on finance is a great way to spread the cost of owning your next car. There are a few things you should know about getting accepted for finance and what factors affect your chances. One of the main factors that finance lenders look at is your credit but how much impact does your credit score have on your ability to get approved? And what happens if you are refused car finance? Let’s find out.
What is a credit score?
Your credit score can be found when you access your credit file. Your credit file is sort of like your financial CV and shows your history of lending. Your credit score is calculated by your financial history. If you have a good track record of paying back credit on time and in full, you will usually have a higher credit score. Your credit score can be negatively impacted by missed payments, late payments, no credit history, inaccuracies on your credit report and negative financial links.
How does your credit score affect your car finance application?
When you apply for car finance, car finance lenders will usually perform a soft search credit check to take a quick look at your credit file and see what type of borrower you are. If you are shopping around for car finance, you should try to stick to soft searches only as multiple hard searches in a short space of time can negatively impact your credit score. People with better credit scores will usually get accepted for car finance and also benefit from better interest rates and higher credit agreements.
What to do if you’ve been refused car finance?
If you are applying for car finance with bad credit and get refused credit, it can be really disheartening. There are more bad credit car finance specialist joining the finance market who can help people with bad credit get a car. Instead of solely focusing on your credit score, many lenders also take affordability into consideration to get you approved. As long as, you can prove you can afford to pay back your car finance, you could be offered an affordable finance package.
If you have been declined for finance, you should first ask your lender on what basis you were declined to get a better understanding of you finances. Then you should try to increase your credit score before making more applications for finance. There are a few easy ways in which you can increase your credit score.
- Make payments on time and in full
- Register on the UK electoral roll to verify your identity
- Check your credit file for any mistakes and update your information
- Disassociate yourself from any negative financial links on your credit file
- Stick to soft search applications only
- Build credit if you have no credit history by getting a mobile phone contract or use a credit building credit card
- Keep your credit utilisation under 50% of your available credit limit
- Keep credit accounts open to show a long credit history
Does getting car finance harm your credit score?
Getting a car finance deal doesn’t negatively impact your credit rating. You credit score can only take a hit if you fail to meet your repayment deadline for your car finance deal. Car finance agreements such as Hire Purchase is secured against the car that you get, and missing payments means the lender has the right to the car off you. Alternatively, you can use your car finance agreement to build your credit score. By making your payments each month, you are showing future lenders that you can pay back loans or finance.