If you’re looking to get a car on finance but are worried about the impact of your low credit score, this guide has been designed with you in mind. It can be possible to get a car loan when you have a low credit score or have missed payments in the past but there can be a few ways in which you can help to increase your credit score and your chances of approval. It’s worth remembering that car finance is never guaranteed, and each lender has their own individual criteria which needs to be met before you can get accepted for finance. Let’s take a look at the ways in which you can fix a low credit score in the run up to your car finance application.
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How does a bad credit score affect car finance approval rates?
When you have bad credit, you can be seen as more of a risk to lend to. This is because you usually find yourself with a bad credit score by not building a credit history or by missing repayment deadlines in the past. If you have been declined car finance in the past, it may be because lenders may be worried that you will repeat this past behaviour and default on your agreement. To help reduce the risk, lenders may reject your car finance application or use higher interest rates to help secure the loan.
Reasons you may have been declined car finance:
If you have need refused car finance, it can be as simple as the fact you don’t meet the lenders criteria. On the other hand, there can be a number of common reasons why they may have rejected your application for finance.
- No previous credit history.
Sometimes you may find yourself with a low credit score due to not having a credit history. Many people who have never had any form of credit in their name assume that it’s a good thing. However, applications for car finance no credit history means the lender can’t predict which type of borrower you will be.
- Don’t meet the affordability requirements.
Not only is car finance about whether you can be trusted to pay your loan back but also if you can afford to meet your car finance payments. If you have no income or a low income, you may not be able to meet the lenders criteria and be unable to stick to the rules of the agreement.
- Too young or too old to finance a car.
Car finance is a legal agreement which means you have to be 18 years old before you can take up a finance agreement. Some lenders may also only consider borrowers who are over 21 years old as younger applicants may not have a credit history yet. Similarly, most lenders have a maximum cut off point for finance too, this usually around 70 years old.
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How to fix a poor credit score
If you want to put yourself in the best financial position before you get a car on finance, it’s worth working on your credit score and your report before you start applying.
- Keep on top of your current payments
One of the biggest factors that affect your credit score is your ability to meet repayments on time and in full. In the run up to your finance application, you should try to stick to the rules of any agreements you have and show future lenders that you can be trusted to meet your financial deadlines.
- Clear any existing debt
Another factor that impacts your credit score is how much debt you currently owe. Having high levels of existing debt or maxed out credit cards can indicate that you can’t afford to take on anymore credit. Where possible, you should try to reduce what you currently owe to make your next finance deal more manageable.
- Check for mistakes on your credit report.
Making sure all your information listed on your credit report is accurate and up to date is really important. Lenders use your report to cross reference the information you have submitted on your application so it’s really important that they marry up. If not, lenders may be worried that it could be a fraudulent application in your name. Misinformation can also negatively impact your credit score. If you need to make any updates to your report, you can contact the credit agency who provided your report.
- Avoid multiple applications.
When you apply for finance or credit, lenders will usually run a credit check to see where you fall on the credit scale. Some lenders may perform a hard search credit check on your credit file which can be record on your report and may harm your credit score. Making multiple applications for finance in a short space of time can negatively impact your credit score.