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What affects your credit score when shopping for car finance?

Credit Score

When you’re applying for car finance, your credit report plays a major part in deciding whether the lender will accept you or not.

It could be the difference between you getting on the road or not, but understanding credit reports and scores can often be a headache. Here, we go through the five main factors on your credit report and how they are used by car finance providers.

Payment history

The most important factor is your history as a borrower. A missed payment can stay on your credit file for seven years and might suggest to a lender that you’re not a reliable customer.

Set up direct debits for major bills like mortgages, rent and utilities to prevent this from happening and match the payment dates with your payday so funds are always available.

Credit utilisation

Also referred to as ‘amounts owed’ and ‘credit usage’ – essentially this measures how much credit you have taken out.

If you can keep your utilisation below 30% of your limits on products like credit cards and overdrafts, lenders will look at you favourably as a responsible borrower.

Credit history

Holding accounts for a long time and stopping them from falling into arrears is another positive indicator for lenders.

If these factors aren’t on your report – due to banking choices or age – it might bring your score down, but not reflect you as a lender. Products like bad credit car finance can give you more options, as well as lifting your credit score as you meet the payments regularly.

Credit mix

Holding different kinds of credit products suggests you are adept at managing your finances better, so make sure to keep on top of repayments across credit cards, loans, phone contracts and more.

If you don’t already have car finance on your report, taking it out and meeting regular payments will improve your score further.

New credit

Having a high number of new credit applications on your report can suggest to lenders that you are beginning to struggle financially and may not be able to make ends meet in your regular budget.

Every time you make a credit application, it leaves what is known as a ‘hard search’ on your file and it will stay there for two years.

If you know you will soon be looking to get a car on finance, it’s worth not making other applications beforehand to increase your chance of being accepted.

What will negatively affect my credit score

Knowing exactly what will cause harm to your credit score will help you avoid the problem. The main flags on your credit score are:

  • Not being on the electoral roll
  • County court judgement against you
  • Late or missed payments
  • Not having a long credit history (unavoidable if your young, however there are many ways you can start to build one)
  • Making too many applications in a short period of time
  • Using all the credit you have available every month
  • Not closing unused credit accounts

What happens if I have no credit history?

You may have no credit history if you have just turned 18, have recently moved to the UK or you’ve never needed to borrow money before. This may result in you being rejected or not receiving the best rate. Equally the process will not be as straightforward. This is where credit builder credit cards come in these are cards designed for customers with low credit and low credit history scores. Similar to credit cards however, they are much more accessible but have lower credit limits and higher interest to pay if you miss a payment etc

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