Credit Score’s Part in the Bad Credit Car Finance Process

If you’re looking to apply for a car finance agreement, you’ve probably already learned that your credit score has a huge part to play – this is because a finance agreement involved being approved for credit, therefore meaning you will need to be assessed based on your credit score. If you have a good credit score, you’ll be more likely to find deals that offer great value, but for those who struggle with poor credit, it’s often a different story.

Bad credit can be caused by a whole host of different factors, but the impact tends to remain the same – it’s harder to gain approval for credit and the deals you are eligible for tend to have higher interest rates as lenders and brokers look to minimise the risk on their side of the agreement. Given the immense importance placed upon your credit score in car finance applications, it’s probably a good idea to get to grips with what a credit score is and how you can influence it – to help you with this, the team here at ChooseMyCar have put together a comprehensive guide to credit scores to help steer you in the right direction, so read on to learn more!

What is a credit score?

So, first of all, let’s look at what a credit score actually is. Essentially, a credit score is a number that determines your creditworthiness in the eyes of the lender – an applicant who is deemed more creditworthy is likely to be able to gain access to better credit and finance deals than those who have bad credit. This is because the individual will be deemed less of a ‘risk’ to lend to; you will likely be deemed higher risk if you have a history of financial troubles such as missing payments on owed debts, defaults, or other factors such as being handed a CCJ and being under a debt management plan. Your credit score therefore plays a key role in influencing a lender’s decision to offer credit when you apply, so it’s vital that you’re keeping your credit profile in top shape to the best of your ability. In general, you’ll find that your credit score is based on the FICO scoring system – there are other scoring systems that are used, but in general it will be based upon this system as this is the one used by most major financial institutions. In the UK, a credit check will usually be conducted with one of three major credit reporting agencies: TransUnion, Equifax, or Experian.

• Payment history: this looks at whether you are paying your obligated debts on time and accounts for approximately 35% of your overall score.

• Total amount owed: this looks at the percentage of available credit that you are currently using, which can also be known as credit utilisation and accounts for around 30% of the score.

• Length of credit history: this looks at how long you have been utilising credit for, with longer credit usually being considered less risky as there is more data to look into when calculating your score. This accounts for around 15% of the final score according to FICO.

• Type of credit used: there are different types of credit that can be utilised, and this part of the credit score investigates how you use each of these. ‘Instalment credit’, such as car finance loans or mortgages, is one type of credit, with the other being ‘revolving credit’, which is credit in forms such as credit cards where the utilisation is constant. This evaluation makes up about 10% of your credit score.

• New credit: This section of your credit score is dedicated to looking at any new credit agreements that have been put in place, including new accounts, how many new accounts have recently opened, and how many new accounts have been applied for. This makes up the remaining 10% of the score.

How can I check my score?

Checking your credit score has never been easier than it is right now – with the rise of online tools and applications now helping you to track and manage your credit score, it’s become incredibly easy to access your credit score and investigate the factors that are having a negative impact on it. There are lots of different platforms that you can use and each has its own unique features to make use of – please be aware that whilst some of these applications offer a paid service for deeper insight and help with improving your score, everybody has a right to access their credit score for free, so you can never be forced to pay for a credit score service to view your score. These paid services are simply an add-on to help you gain a better understanding of your credit score, rather than a cost for accessing the score itself.

No matter which platform you choose to use, it’s likely that your score will have been calculated using one of the three main CRA’s, so don’t worry – using a different service won’t impact how accurate your score is. You can try out a few different services until you find the one that you feel most comfortable with, as many of the credit rating apps do tend to have specific features that you might not be able to find on other services.

Tips for improving your credit score:

1. Register on the electoral roll at your home address. This is an incredibly easy step to take that a surprising amount of people forget to do. Being on the electoral roll helps companies to confirm your identity, which reduces the chance of fraud and in turn, the risk associated with offering you credit! In turn, your creditworthiness could improve as a result of simply adding yourself to the electoral register at your home.
2. Keep up with your payments. If you’re currently utilising credit (which is a good thing, as we’ll discuss later), you’ll want to make sure that you’re paying back your debt on time and in full each and every month. By doing this, you keep your debt at a minimum and prove to lenders that you are a reliable, responsible and trustworthy recipient of credit that there would be little risk with in the future.
3. Keep your credit utilisation low, but never at zero. Utilising credit is the only way to prove that you are responsible when using credit, so be sure to use a small amount of your credit regularly and keep up your finance repayments – by creating a perfect history of successful repayments, you again show yourself to be a safe bet to any potential lender, broker, or finance company that you may deal with in the future for things such as mortgages and car finance plans.

Tips for maintaining a good score when you get there:

1. Keep an eye out for fraud, as any fraudulent activity on your account could badly harm your score. To avoid this, you’ll want to be very careful with how you use your credit cards and other forms of credit, as well as monitoring your credit report for any suspicious or unfamiliar activity that wasn’t committed by yourself.
2. Borrow what you can comfortably afford and no more. Borrowing more than you can afford can be a slippery slope that leads to large amounts of debt, a CCJ (County Court Judgement) , debt management plans, or even bankruptcy, so it’s best to only borrow if you can guarantee that you’ll be able to comfortably repay the debt on time. If you do ever miss a monthly repayment, it’s vital that you contact your lender immediately to work out a plan for repaying this extra debt.
3. If an account isn’t being used, close it! When you’ve got multiple open accounts, your available credit amount will be higher and this can mean lenders will be apprehensive to offer you any more. Keep on top of your open accounts and close any that you don’t think are of use anymore so that they can’t cause any problems by interfering with your active accounts.
4. Keep up with payments. This one is simple – make your payments on time and in full every month, or risk major harm being done to your credit score in the long run.
5. Finally, you’ll want to limit the amount of new credit applications that you’re making once you have a healthy score – too many applications in a short period of time can indicate an over-reliance on credit, which is a huge red flag for lenders. Every application will appear on your credit report, which can be seen by all future lenders, so be careful with how often you apply for new credit.

Yes, car finance will impact your credit score. Car finance deals are a major payment each month, which makes them a huge factor in your credit score – don’t be alarmed, this may sound daunting but it can actually be a very useful tool for improving your credit score if you are responsible and rigid with your payments. If you keep your applications to a minimum, or better yet use a pre-approval system such as ChooseMyCar, the initial application shouldn’t harm your credit score at all; applications will only negatively impact your rating if there is evidence of multiple searches in a short space of time. This is where our bad credit finance deals become an incredibly useful tool. When you have a poor credit score, you can’t afford to have multiple searches happening on your account, and you certainly can’t afford a rejected loan application to appear on their either – our pre-approval system allows us to check whether you may be eligible for one of our deals using a soft credit check, which doesn’t appear on your credit report. If this initial check comes back clear, you’ll be able to submit to a hard credit check with the safety and knowledge that you are more likely to be accepted for credit.

The instance where credit can impact your score is when you start making, or failing to make, your payments. Missed or late payments will always harm your credit score, and evidence of these actions can actually stick around for quite a long time, so if you want to avoid long term harm being done to your credit score, you’ll want to make sure every payment goes through smoothly.

Will I be able to get a car finance agreement if I have bad credit?

In most cases, yes! At ChooseMyCar we’re specialists in bad credit car finance, so we’ve got lots of different types of finance to help those with bad credit, such as through utilising no credit check car finance, so you won’t have to worry about not being able to find finance – there’s something for everyone. Our car finance deals are designed to put you in the driving seat, both figuratively and literally, allowing you to structure the payment plan to suit your exact needs so that you can get out on the road in your shiny new car in no time at all. When you’re applying for a car finance deal at ChooseMyCar, you can set the length of the finance agreement and the amount you’d like to put down as a deposit using out handy tools – this will then show you how much you will be expected to pay each month so there’s no ugly surprises at the end of the application process – if you want to use our finance calculator, just click here!

If, once you’ve used our car finance calculator, everything looks to be affordable in line with your monthly income, all you need to do is continue with your application process either by phone or online. Our friendly team is always on hand to help out if you hit any roadblocks, so don’t be afraid to get in touch if you’re having any trouble with your application or if you’d just like to ask a few questions before you proceed. Once your application is complete, you’ll be able to finalise the agreement with the broker or lender, set the monthly payment plan rolling, and get your hands on the keys to your new vehicle in next to no time at all.

From convenient hatchbacks and multi-purpose vehicles to flashy sports cars and elegant coupes, our extensive range of cars is curated to offer something for everyone. No matter whether you’re looking for an economical car to handle the school run, an SUV for rugged terrain in all weathers, or a convertible to make the most of those glorious days filled with sunshine, you’re sure to find something that suits you within our fantastic network of trusted UK dealerships. Browse our range today to start your journey towards getting back on the road with the perfect car, at the perfect price.