You may have heard that having a bad credit score means you can’t get accepted for car finance or loans. This can be true in some cases but there are ways in which you can start to rebuild your credit score and increase your chances of approval. If you’ve already been refused credit, it can be disheartening but we want you to know that not all hope is lost! With a little careful planning and by giving your credit score a little TLC, there could be car finance options available to you.
What is bad credit?
Bad credit refers to your credit score and your ability to meet repayments. Your credit score is a numerical score which can be found when you check your credit file. There are 3 main credit reference agencies, Experian, Equifax, and TransUnion, who have their own scoring system for what they class as ‘bad’ or ‘poor’ credit. What one lender sees as ‘bad’ another may class your score as ‘ok’ so it’s important to not get disheartened by one. However, falling into any of these categories can indicate that your credit score needs some help. You may find yourself with bad due to missed or late payments in the past, high levels of debt, high credit usage and mistakes on your credit file.
How does bad credit affect car finance?
Having a bad credit score can influence a lenders decision when you are applying for car finance. It’s not the only thing they will take into account, some bad credit specialists focus on affordability and ability to meet the repayments rather than your credit score. However, some lenders do reserve low rate finance for people with ‘good’ or ‘excellent’ credit scores. Lower interest rates mean you don’t have to pay as much back and can make your finance deals more affordable. Getting a car on finance doesn’t directly impact your credit score but it can negatively impact your score if you fail to meet your car finance repayments.
How to improve your credit score:
There are a number of ways in which you can help to rebuild your credit score or start to build a credit history if you don’t have one already.
Never miss a payment
If you already have credit or finance, you should make sure you meet all your current payments on time and pay them in full. Missed or late payments are one of the biggest factors that affect your credit score. If you have a credit card, you should try to pay more than the minimum required each month as it can imply you are struggling to handle the credit you already have.
Reduce any existing debt you have
Your credit score also takes into account how much debt you currently owe. If you have high levels of existing debt, you should consider reducing this first before taking on any more credit. Not only will it make your finance deal more manageable for you to pay back but it can make you more attractive to lenders. If you are struggling with debt, you could consider debt consolidation to help.
Fix any mistakes on your credit file
Having incorrect information on your credit file could be holding you back. If you information doesn’t match the info you have provided on a car finance application form, it can be hard for lenders to verify you. In the UK, you can register on the electoral roll which is used by lenders to verify your address.
Avoid multiple application
If you are searching for car finance or loans, you want to get the best deal possible. However, making multiple applications for finance in a short space of time. If you want to compare car finance, you could consider using a car finance broker who can help match you with the best lender whilst only making one application. Car finance brokers don’t provide finance but instead compare a range of finance packages from some of the most trusted lenders in the UK.