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How your credit rating impacts your chances at getting a car on finance
In a nutshell, your credit rating is a score that reflects how good of a borrower you’re thought to be.
Lenders never see this score – all they can access is your credit history. This will give them an indication of how good you are at managing your money.
People with a poor credit history may find that lenders offer them higher interest rates or poorer lending options. Some may refuse to lend to you altogether.
Fortunately, there are options available to you:
Improve your credit rating
This has the best long-term benefit but is the most time-consuming of all the options here.
Improving your credit rating is a good way to show lenders that you can be trusted with repayment. This increases your chances of getting finance with decent rates.
Get a credit report
Okay, so you may have a “bad” credit score. But what does “bad” actually look like?
To get a decent view of your credit history, use a credit check service. This should tell you about any active credit, any missed payments and people who are financially linked to you.
This is a good place to start. Make sure all of your details are correct and up-to-date. Not only does this help when lenders do credit checks, but it’ll also reduce the risk of fraud.
Register on the electoral roll
When lenders do credit checks, they’ll check your name and address. Being on the electoral roll makes this process much easier for them, and also helps to reduce the risk of fraud.
Sever ties with those who have bad credit
You may have an old joint credit account with someone who has since fallen into bad credit. In cases like this it’s possible that the black mark against their name is dragging you down.
If you want to sever ties with these people financially, you’ll need to issue a notice of disassociation. After some checks, credit reference agencies should be able to remove this person from your file.
Pay debts off in a timely fashion
If you’re trying to borrow money, having an already-growing debt isn’t going to do you any favours.
Keeping up with your repayments is a good sign to lenders that you can borrow responsibly. This will – over time – help to improve your credit score.
Also, try not to exceed 75% of your credit limit. Running yourself up the wire again and again could be an indication that you’re bad at managing your money.
This also applies to late payments and exceeding your credit limit. Keep a close eye on your spending and prove that you can keep on top of your debt.
If you’re short on time as well as cash, one of these options might be worth considering:
Increase your deposit
With finance deals like hire purchase or personal contract purchase, you’re usually asked to put down a deposit. Normally this can be around 10%, but it’ll vary depending on what deal you’re after.
Putting a little more money down at this stage could help the lender’s confidence in your ability to make repayments. This in turn may result in a better interest rate for you.
Unsecured guarantor loans
There are a number of companies that specialise in loans for people with bad credit. The problem with many of these is that their interest rates can be comparatively high.
An alternative to this is a guarantor loan, where you get someone who trusts you to act as your guarantor. If you can’t make the repayments for whatever reason, the debt passes to them.
This method poses less of a risk to lenders and so tend to offer better interest rates than short-term loan companies.
This isn’t something to go into lightly, as being a guarantor is a hefty responsibility. If the guarantor is unable to shoulder the debt, both you and your guarantor could face legal action.
Ultimately, it’s important that you don’t bite off more than you can chew when it comes to debt. It’s not worth being thousands of pounds in the red for a new set of wheels.
If you’re in doubt, speak to a financial advisor.