When it comes to buying your next car, it’s understandable if you’re a little nervous. After all, it’s a lot of money and potentially will be your biggest monthly payment for a long time if you choose a finance option. It’s no wonder that in an independent survey which we carried out in January 2023, it was revealed that 34 percent of people would worry about their credit score not being good enough for a competitive deal, if they had to buy a car next month.
Your credit score can be the maker and breaker of your car finance deal. So it’s something that’s worth checking out. But what is it, and how does it come into play? We’ll break it down for you a little bit.
What is a credit score?
Your credit score is your financial history, analysed and picked apart in order to give a three digit figure summary. This three digit figure tells lenders whether you are credible or not for a finance plan. Now, it’s important to note that there is not a figure that says ‘yes’ to all. You can have a really high credit score and still be rejected – although it’s unlikely. But that also means that having a low credit score doesn’t mean you will never be accepted for a finance payment plan.
However, with that being said, it’s wise to keep your credit score as high as possible. The good news is that improving your credit score is completely within your power. It’s not like your car insurance, where your postcode and the type of parking you have will affect it. So, here’s what you can do.
How to improve your credit score
The first one may seem challenging – it’s paying off debts. Now, it’s important to note that this doesn’t need to be done in one large lump sum. If you have a credit card with £10,000 debt on it, you’re not expected to pay this instantly. But paying off a couple of £100 every month can be really beneficial. Even if you’re just regularly paying off £50 each month. It shows that you’re being responsible with your finances and dealing with them, rather than ignoring them completely.
When we talk about paying off your debts, we’re not just talking about those large amounts. Paying your bills on time as well is a good idea. Late fees and missed payments will damage your credit score, so get as much as you can set up on a direct debit so that you never miss a payment. Check your utility bills and your phone contract to make sure there aren’t any outstanding payments you may have forgotten about.
Keeping your loan payments to a minimum is the next way we recommend to increase your credit score. Remember if you’re regularly applying and searching to see what money you can borrow, it isn’t going to look good for your financial state. Even if you’re looking to borrow from different lenders, your credit score is universal, meaning that while lenders may not be able to see your other applications they will be notified if your credit score isn’t good enough. They will simply receive a red flag when you apply – they won’t know what your score is or why – they won’t be able to help you. For this reason, keep your applications to a minimum and only borrow when you either need to or know you will have a high chance of being accepted.
How to improve your chances of being accepted for a car finance plan
Improving your credit score is great for your financial standings. It’s something you should consider doing regardless of whether you need to borrow money now or not. But if you’re looking to get a car on a finance plan relatively soon, we understand that the above may not seem like it could work overnight. But don’t worry, there are options here too.
Increasing your deposit, even by a couple of hundred in a purchase that costs thousands, can still have a positive impact. Think about it. When your credit score is flagged and you’re not able to borrow as much as you had hoped, it’s not that you’re being rejected to borrow – you’re being rejected to borrow that amount. So your first plan of action should be to reduce the amount you’re borrowing as much as you can.
If this doesn’t work, try taking a look at a guarantor loan. These aren’t always available but can be useful. It’s a signed document that states if you cannot pay the bill, somebody else is financially liable for your loan. The only tricky part is getting someone to agree to it as you’ll have to be honest about your financial situation.
Looking for a new car or car finance?
If you’re looking for car finance deals or even finance on cars if you have bad credit, contact the ChooseMyCar team.
