Is your credit score good enough for car finance?
Many people want to know what their credit score should be to get accepted for car finance. This is a grey area as different finance lenders have different requirements to get customers approved for car finance. However, there are a few ways in which you can increase your chances of getting approved for a car loan! It can also help your overall financial life if you better understand what your credit score is and how it is calculated.
What is a credit score?
A credit score is a reflection of your financial history. It is a number which can be found on your credit file and shows how much of a good borrower you are. Your credit score can be an indication to potential lenders of how likely you are to pay back a loan or finance. You should get into the habit of checking your credit regularly. You can check your credit score for free using a credit referencing agency such as Credit Karma.
Why is your credit score important?
Having a good credit score can give you access to a whole range of benefits in your financial life. Having a good credit score usually means you have more of a chance to get accepted for loans or finance, based on your history of borrowing. It also usually gives you higher credit limits and lower interest rates on finance packages offered.
How is your credit score calculated?
There are a number of factors which can influence your credit. For each credit referencing agency, it can differ but the most common ways to calculate your credit score includes:
- Personal information, such as, name address marital status, living situation etc.
- Your credit history and ability to make repayments
- Number many applications you make for credit
- Public records such as being registered on the electoral roll and if you have received a default, CCJ, entered an IVA or been declared bankrupt.
What is a good credit score for a car loan?
There is no magic number for the perfect credit score. However, the higher you can get it, the better! Credit Karma ranges their credit scores from 0-710 and anything above 604 is considered ‘good’. Generally, people with better credit scores will get access to car loans with low interest rates and lower monthly payments. This can help you save money in the long run. Having a low credit score doesn’t necessarily mean you will be declined for car finance or be hit with high interest rates. Using a bad credit car finance specialist can help you get an affordable finance deal with a car in your budget! However, if you are struggling to get approved, it can be more beneficial to work on your credit score first before applying for car loans.
How can you increase your credit score?
Increasing your credit score can take time if you’ve struggled to meet your repayment deadlines in the past. However, there are a few ways in which you can help to increase your score.
- If you have high levels of debt, you should consider trying to clear or manage your debt before applying for any more finance or credit.
- Making regularly payments on time and in full is one of the best ways to increase your credit score.
- Having someone with good credit to support your application such as a joint car finance application can help to increase your credit score when you regularly meet your monthly car finance payments.
- Register on the UK electoral roll to help lenders verify your identity and prevent fraudulent applications in your name.
- Check your credit file regularly and fix any mistakes or incorrect information.