How Do Low Credit Scores Affect Car Finance?
Your Credit Scores is a number that presents your Credit History at-a-glance. It’s an amalgam of all the ups and downs of your recent credit past – your credit cards, your loans, your rent payments and more.
From this, a Lender can see how good you have been with money in the past. This then gives them an idea of how good you’re likely to be with money in the future.
Credit Scores are compiled by Credit Agencies. There are three main agencies in the UK: Experian, TransUnion and Equifax. They all score in slightly different ways but the general pattern is that the higher the number, the better your credit history. The Lower your number, the worse you have been in the past.
Having a low Credit Score can make it more difficult to gain Finance because a Lender will see you as at higher risk of defaulting. They may still accept you for Finance but they may add extra monthly fees to mitigate that risk, making the Finance more expensive in the long run.
Experian has a very clear guide to its credit rankings, with an easy to understand diagram that details the health of your credit score – from “Very Poor” to “Excellent”. Any score between 881 and 960 is considered “Good” and a score of 961 and 999 is considered excellent. In short, if you get a credit score over 881, you’re in great shape for finance on your car.
There are many Credit Agencies in the UK and all of them have different measurements for their credit scores. That makes stating a blanket number tricky. Experian, which is the biggest credit agency in the country, places any score under 580 as either poor or very poor. TransUnion puts the number as anything under 500. Check which Credit Agency your lender uses.
There is no set credit score that you must have to secure Finance on a car. A higher score will certainly make it easier and more affordable. A higher score will mean lower fees. Your Credit Score is one of many measures used to assess your eligibility and if other circumstances show you in a positive light a lender may agree to Finance despite your score.
There are many considerations when it comes to agreeing on Car Finance for a customer. The primary consideration is a belief that the applicant has the means to pay the finance back. But how do they work that out?
Generally speaking, they do this by checking your past financial history, as summed up in your Credit Score. If this is very low, you may be considered a higher risk of defaulting on your loan. They’ll also be looking at your income and your current outgoings.
It may be that your Credit Score is low through no fault of your own – if you’re too young to have built one, for example.
There are many ways of rapidly improving your credit score. If your current circumstances are financially encouraging you could contact the agency directly about making a change. Experian even have a “Boost” function with this in mind.
Check your Credit Report with each Credit Agency and correct any errors you find. If you’re not already on the electoral register, adding yourself can make an instant impact too. Reduce any borrowing you currently have as quickly as you are able. You can also use specialist credit and debit cards that can demonstrate your fidelity with money.