Car Finance and Credit Scores: Everything You Need to Know
Whenever you apply for finance, whether it's for a house, car or something else, the lender will perform a credit check before deciding. If you're in the market for a new car, you may be wondering how your credit score will affect your ability to get car finance. In this article, we'll take a closer look at car finance and credit scores, and provide tips on how to improve your chances of approval.
What is a Credit Score?
Your credit score is a numerical representation of your creditworthiness. It is calculated based on your credit history, including your payment history, the amount of debt you owe, the length of your credit history, and the types of credit you have.
How Does Your Credit Score Affect Your Ability to Get Car Finance?
When you apply for car finance, lenders will use your credit score to determine whether or not to approve your application, and what interest rate to offer you. A higher credit score will generally result in a lower interest rate, while a lower credit score may result in a higher interest rate or even a denial of your application.
Improving Your Credit Score:
If you're concerned about your credit score and how it may affect your ability to get car finance, there are steps you can take to improve your creditworthiness. These include:
- Paying your bills on time and in full each month.
- Keeping your credit card balances low.
- Avoiding opening too many new credit accounts at once.
- Checking your credit report regularly and disputing any errors.
By taking these steps, you can improve your credit score and increase your chances of getting approved for car finance.
Below are some more detailed topics explaining how car finance and credit scores work.
What credit score do I need to get car finance?
There's no solid number that dictates whether or not you can get car finance, especially as different agencies use different scoring systems. As a rule of thumb, however, the lower your score, the better your chances of securing car finance. Higher scores also give borrowers access to lower interest rates, which means cheaper monthly repayments. It's important to know your score before applying for car finance, as there may be actions you can take to improve it if necessary.
Find out more about the credit score you need to get car finance
How to get a good credit score?
There are plenty of things you can do to improve your credit score and increase the chances of getting accepted for car finance and other forms of credit. These include registering to vote, using your credit responsibly, always making payments on time and avoiding multiple credit applications at once. Do this, and you stand a good chance of boosting your score.
Find out more about how to get a good credit score
Can I get car finance with a bad credit score?
A good credit score isn't the be-all and end-all of getting car finance, though it does play a major role. Ideally, you want to have a good credit score when you apply. There are, however, other factors the lender will take into consideration, such as income. You may be offered finance but have to pay higher interest rates if you have a poor credit score.
Find out more about getting car finance with a bad credit score
Can I get car finance if I have a low credit score?
Having a low credit score is essentially the same as having a bad one. Therefore, the same rules apply. You should still be able to get car finance, but the options available will be limited and you can expect to pay higher interest rates. In an ideal world, you'll have a good credit score when applying for car finance.
Find out more about getting car finance with a low credit score
5 ways to improve your credit score
There are several things you can do to improve your credit score so that you stand a better chance of being accepted for car finance. The five key actions you should take include registering to vote, making payments on time, checking your credit report for errors, performing soft searches to check eligibility and not applying with multiple lenders at once.
Find out more about the 5 ways to improve your credit score
5 ways to build your credit
Building your credit is important for accessing better car finance deals and paying lower interest rates. Again, registering to vote, making payments on time, checking your credit report to see any errors are listed, performing soft searches to see your eligibility and not making one than one finance application at once will all help improve your credit score. On top of that, maintaining good credit to debt ratio will also keep your score healthy. For example, if 75% of your credit is used up, it looks like you're keeping a high level and owe a fair amount of money. As a result, it can prevent lenders from approving future finance applications.
Read more about 5 ways to build your credit report
Will getting car finance improve my credit rating
If you're successfully accepted for car finance and don't miss any of your monthly repayments, then, yes, getting car finance can improve your credit rating. The impact might not be immediate, and you could even see your score drop initially as a new line of credit is added to your credit report. Over time, however, your score will return to normal and maybe even improve as you continue to make the payments on your car finance agreement.
Learn more about if car finance will improve your credit rating
Does getting car finance affect my credit score?
Getting car finance can affect your credit score, but it's not always the case. There are lots of variables that go into, including the hard search performed by the lender. As long as you make regular payments and are never late after being accepted, car finance won't impact your score significantly. You may see an initial drop after the finance begins, but this will soon correct itself as you make the regular monthly payments.
Find out more about if car finance affects your credit score
Will multiple car finance quotes affect my credit rating?
There is no limit to the amount of car finance quotes you get, as long as you don't make multiple applications. When you apply for finance, the lender performs a credit search on your report, which, in turn, leaves a "hard search" on your profile. This lets other lenders know that a company has carried out the research. Applying with more than one car finance company at the same time will leave multiple hard searches and can impact your credit score negatively. However, if you only want to get a quote from the car finance company, you can rest assured that it won't have any impact on your credit score.
Find out more about how car finance quotes can affect your credit rating
Soft search v hard search: what's the difference?
When you apply for finance, the lender will perform a hard search on your credit report. This leaves a note saying that a company checked your credit score when you applied for finance. Any other company checking this score can see which hard searches were performed. Too many hard searches on a credit report make it look like you have applied for lots of different finance at once and may deter lenders from lending to you. With a soft search, however, you don't face the same issues. Companies may perform a soft search just to get an indication of your suitability. Fortunately, it won't show up on your credit report, meaning other lenders can't see it. Consequently, it doesn't impact your credit score.
Find out more about the differences between soft and hard searches
What can affect your score negatively?
There are several factors that can have a negative impact on your credit score. We've already mentioned how making more than one finance application at the same time can lower your score and have a negative impact, but what else? Setting up too many bank accounts at once, reaching your credit limit, late or missing payments and borrowing more than you can afford can also affect your score for the worse.
Find out more about what affects your score negatively
Car finance for near prime credit scores
A near-prime credit score means you're almost there but not quite in terms of having a very good credit score on your report. Car finance may still be available to you, but you can expect to pay higher interest rates as a result. Therefore, you should try to get your credit score to prime status by doing things like registering to vote, making sure payments are on time and having just a few credit cards.
Find out more about car finance for near prime credit scores
Best websites to check your credit score
The three primary credit agencies are Experian, Equifax and TransUnion, and they all provide free and paid-for ways to check your credit score to varying levels. On top of that, you can use other websites, such as ClearScore, MSE Credit Club and Credit Karma, to check your score completely free of charge. They all use one of Experian, Equifax and TransUnion and also offer help and advice for improving your credit score.
Find out more about the best websites to check your credit score
Which car finance companies use Experian?
Experian is one of the primary credit agencies – it's a national organisation that research and collate credit information from consumers. When you apply for finance, some lenders use Experian to check your credit score. Although it can be tricky to check in advance which company uses which credit agency, you should be able to find out during the application process. Your score should be similar regardless of the agency used by the lender, which means there isn't a significant difference between credit agencies when it comes to your score.
Find out more about which car finance companies use Experian
Which car finance companies use TransUnion
Like Experian, TransUnion is another one of the major credit agencies, also known as credit bureaus. At Carmoola, we use TransUnion to check your credit score when you apply for finance. There are three primary credit agencies – Experian, Equifax and TransUnion – and they hold records regarding your credit score.
Find out more about which companies use TransUnion
Can I get finance without a credit history
Getting car finance without any credit history may provide difficult, though it is possible. There are other options available, such as getting a co-signer (guarantor). If you go down the route of getting car finance without having a credit history, you may be liable to pay higher interest rates on the loan.
Find out more about getting car finance without a credit history
Can I get car finance without a credit check?
While there aren't a ton of options for getting car finance without a credit check, it's not impossible. You can get a co-signer who guarantees the finance, meaning they take over the payments if you can no longer afford the loan. Other options include using community banks or credit unions, as these tend to be more considerate. Some dealerships may also offer direct car financing without using a band and therefore it's possible they might not perform a credit check.
Find out more about getting car finance without a credit check
Conclusion
Your credit score plays a critical role in your ability to get car finance. By understanding how your credit score affects your application and taking steps to improve your creditworthiness, you can increase your chances of getting approved and secure a better interest rate. If you have any questions about car finance and credit scores, be sure to consult with a financial professional for guidance.
