How Does Your Credit Score Affect Your Car Finance?

Your credit score affects several parts of a car finance agreement. Lenders use your score to decide whether to approve your application, what interest rate (APR) to offer, how much deposit you may need, and how much you can borrow. Borrowers with higher credit scores are usually seen as lower risk and may qualify for lower APRs and more flexible repayment terms.

What Is A Credit Score?

Summary: A credit score is a number used by lenders to measure how reliable you are at repaying loans and finance agreements.

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.

Car Finance Types And Credit Score Requirements

PCP Finance

Often requires stronger credit due to lower monthly payments and a balloon payment.

HP Finance

Usually easier to obtain with lower credit scores because the loan is secured against the car.

How Does My Credit Score Affect My Car Finance?

Summary: Your credit score affects whether you are approved for car finance, the interest rate you receive, the size of your deposit, and the amount you can borrow.

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 Car Finance Affects Your Credit Score

Summary: Car finance can temporarily lower your credit score due to a hard credit check, but making repayments on time can improve your credit history.

Car finance has a direct impact on your credit score, especially if you miss monthly payments. When you start off in a car finance agreement, a hard credit search will occur when you’re ready to sign the contract. This hard search appears on your credit file, directly impacting your credit score for the future. However, if you make repayments on time, your credit file will improve. When you initially finance a car, your score could temporarily dip. This is nothing to worry about, and your score will recover if you avoid missed payments and defaults.

What Credit Score Do You Need For Car Finance?

Summary: Different credit score ranges affect your chances of approval, the interest rate you receive, and whether you may need a specialist lender.

How Do I Improve My Score?

Summary: You can improve your credit score by paying bills on time, correcting credit report errors, limiting hard searches, and registering on the electoral roll.

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, TransUnion is a good site to use.

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.

Can You Check Car Finance Eligibility Without Affecting Your Credit Score?

Summary: Many lenders offer eligibility checks using soft searches, allowing you to see if you may qualify for car finance without impacting your credit score.

Yes, you can check car finance eligibility without affecting your credit score. Most car finance companies, including Marsh Finance, provide a free eligibility check with no impact on your credit score. This allows you to get an idea of whether you’d be accepted for finance, without hurting your credit profile. Car finance calculators are another great tool for checking your eligibility. Input your credit score and the amount you wish to borrow and for how long, and receive information as to what your car finance agreement could look like.

Should I Still Apply For Car Finance With Bad Credit?

Summary: Even with bad credit, you may still be able to get car finance through specialist lenders who work with near-prime or sub-prime customers.

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
• Equifax
• TransUnion
• ClearScore
• Credit Karma