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How does your credit score affect your car finance?

Car finance can be a simple process, making it a simple way to afford your dream car. Spreading the cost of a number of months can be the most manageable way for many people to get on the road. Either through PCP (Personal Contract Purchase) or HP (Hire Purchase).

Whichever finance type you decide to go with, an important part of car leasing is the credit search. A credit search can provide your lender with details of your credit score, showing them how financially secure you are and how good at repaying loans and past finance you are.

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, whether that’s a credit card, mortgage, personal loan or car finance – the lender will check your personal credit score to help them decide if they will give you the loan or not.

If you are on top of all your payments and have no accounts in arrears, then it’s likely that your credit score will be good, so you’ll be 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.

If you have a bad credit score – if you have consistently missed payments, gone into arrears or have CCJs or have had judgements towards you, you credit score will show this. It will be much harder to then 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 mentioned above, depending on your score you will have the choice of several lenders. 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. There is no exact credit score that 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 as lenders will be able to see you’re likely to stick to the financial agreement.
  • You’ll have more options for cars and lease types as you’ll be able to access the better deals on the vehicle you like.
  • Lower interest rates
  • Deposit size can be your choice, benefiting from lower deposits or even no deposit at all as lenders trust you to upkeep their payments.

If you have bad credit (credit score below 670)

  • If your credit report shows missed payments or CCJs, it makes you a bigger risk to lend to.
  • You may have higher interest rates than someone with a higher credit score, it will still be cheaper than buying the car outright.
  • Larger deposits or reduced choice on deposit size, meaning you won’t have as much flexibility, but if you can afford a larger deposit the lender may feel more inclined to accept you.

How do I improve my score?

Every time you take any type of loan out, its added to your credit score. Reviewing your credit reports through websites like TransUnion or for free at AnnualCreditReport.com can help you understand what’s affecting it. If you spot any errors on your file, report them to credit referencing agencies as negative information on your file can stay there for up to 6 years.

Limiting your requests on ‘Hard Searches’ can also help, as a Hard Search is when a lender will request your credit file and that request is added to your score which can decrease it by a small percentage every time. Requesting ‘Soft Searches’ can help this. Another easy way to improve your score is enrolling on the electoral roll for your local area, it 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 looks out of place.

Just be aware that lenders tend to feel more comfortable offering loans to  those who have lived as a number of addresses, regardless of through a mortgage or through renting. It shows your are more stable and secure as you can afford to live on your own.

Of course, another suggestion is to pay your bills on time. Forgetting to pay can damage your score, so if you can afford to, setting up a direct debit can make it easier to keep on top of multiple bills.

Should I still apply to lease a car with bad credit?

In short, Yes.

Here at Marsh Finance, we deal with many people from all financial and credit backgrounds. Each lender will have different criteria, we work in the Near and Sub prime market. So, if your credit score is a little lower than you’d wish, we will still be able to help.

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

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Phoebe Rowe

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