How Does Your Credit Score Affect Your Car Finance?

Car finance can be a simple, easy way to afford your dream car. Spreading the cost of many months can be the best way to get on the road. You can do this with us through either through PCP (Personal Contract Purchase) or HP (Hire Purchase).

Whatever finance type you decide to go with, the credit search is a really important part of the process. A credit search provides your lender with details of your credit score. This shows them how your financial strength, and how good you are at paying back loans and finance.

What Is A Credit Score?

Your credit score is made up of a 3-digit number between 0 and 850. When you apply for any type of finance or loan, a credit check will always take place.

If you are on top of all your payments and have no accounts in arrears, your credit score will be good. This makes you more likely to be approved. If you have a good credit score, you’ll likely be approved by a Prime lender such as Santander or Black Horse.

You will have a bad credit score if you have consistently missed payments, gone into arrears or have CCJs or have had judgements towards you. If this is the case, your credit score will be lower. A lower credit score will make it much harder to get a Prime lender to offer you finance. Instead, you have the choice of a number or Near Prime or Sub Prime lenders, such as Marsh Finance or other companies.

How Does My Credit Score Affect My Car Finance?

As we have said, your score will determine what lenders you can choose from. Having bad credit does not mean you will never be accepted for car finance, it just means you have a smaller choice of lenders to choose from. No exact credit score will guarantee you a certain loan, they are all bespoke agreements to suit your financial position.

If you have good credit (credit score between 670 to 800+)

• You’re more likely to be approved. Lenders will be able to see you can stick to an agreement.
• You’ll have more options for cars and lease types. This is because you’ll be able to access the better deals on the cars you like.
• Lower interest rates.
• The size of the deposit is up to you. You have the choice of lower deposits or even no deposit at all, as lenders trust you to make payments.

If you have bad credit (credit score below 670)

• Your credit report might show missed payments or CCJs. This makes you a bigger risk to lend to.
• You may have higher interest rates than someone with a higher credit score. Even now, it will still be cheaper than buying the car outright.
• You will have to pay a larger deposit and have less choice over the size of the deposit. This is because you are less likely to make your repayments than someone with a better score. If you can afford a larger deposit, this will help your case for finance.

How Do I Improve My Score?

Every time you take any type of loan out, it's added to your credit score. If you want to see what your credit report looks like, we have some good websites: 

• TransUnion
• AnnualCreditReport.com

If you spot any errors on your file, report them to credit referencing agencies. It is important you do this, because negative information on your file can stay there for up to 6 years. Limiting your requests on ‘Hard Searches’ can also help. A Hard Search is when a lender will request your credit file and that request is added to your score. This will decrease your score by a small percentage every time. Requesting ‘Soft Searches’ can help this. These checks don't leave a mark on your score. An easy way to improve your score is by enrolling on the electoral roll. This helps lenders verify who your are and makes you appear more stable.

Check for fraudulent activity. Make sure all activity on your score is your own and report anything that doesn't look quite right.

Your housing history is important too. Lenders like applicants that have lived at the same address for a long time. You don't even need to be the owner of the property! Living at the same house for a long time shows you are stable and can afford to live on your own.

Of course, you need to pay your bills on time. Forgetting to pay can damage your score. If you can afford to, setting up a direct debit can make sure you never miss a payment. 

Should I Still Apply For Car Finance With Bad Credit?

In short, Yes.

Here at Marsh Finance, we help people from all financial and credit backgrounds. Each lender has different criteria. We work in the Near and Subprime market, so if your credit score is a little lower than you’d wish, we may be able to help!

You can check your credit score online through websites such as Experian, CallCredit and Equifax.