If you’ve been declined car finance, you may be thinking it’s the end of the road. Whilst for many applicants, this can mean that you may not get approval, it can be worth having hope and putting yourself in a better financial position before you start to apply again. There are factors that you can consider helping increase your credit score, build a credit score, and increase the likelihood of getting a car on finance. However, firstly, it can be a good idea to get more of an insight into how car finance is affected by credit scores. The guide below looks to do exactly that. Let’s take a look at how your previous credit affects approvals and also the top 5 ways in which you can increase your chances of getting a car when you have poor credit.
How does credit history affect car finance?
Many people with bad credit don’t actually know how their low credit score affects car finance approvals. When you apply for car finance, a lender wants to know the likelihood of you being trusted to pay back your loan on time and in full. They can do this by referring to your previous borrowing history. If your history shows high levels of debt or missed or late repayments, you are more likely to default on any future loans too. This increases the risk to the lender, and they may decline you. Alternatively, some lenders can approve you for finance but can set a higher interest rate to help secure the deal. Having a better credit score and a long history of being able to handle your credit or finance responsibly will not only get you easier acceptances, but it will also increase your credit score and get you a better car finance rate.
5 ways to increase the chances of getting a car with a poor credit score.
Whilst car finance will never be guaranteed and you will need to meet the lenders criteria before you can get approved, there are a few factors you can consider preparing your application.
- Check your credit report.
You’d be surprised how many car finance applicants don’t know what their current credit score is and what is listed on their report. It can be a good idea to get a free credit report from a trusted credit referencing agency and take some time to see what’s recorded on there. You should make sure all your information is accurate and up to date as having misinformation on your credit report can be negatively affecting your score. It’s also important that the information you supply on your application matches your credit report as lenders use it to confirm your details and reduce the risk of fraudulent applications.
- Reduce any existing debt.
One of the factors that can affect your car finance application and also your credit score is how much debt you currently owe. High levels of existing debt negatively impact your score and you should try to reduce any debt before taking out car finance. You should try to only use around 50% of any available credit limits and if you really want to make an impact on your credit score, try to keep it under 30%. From a lenders point of view, when you have lots of debt already and aren’t clearing it, they may think you can’t handle taking on any more credit. By taking control of your finances and reducing your debts it can make your finance more manageable and could increase your monthly affordability.
- Build a credit history.
It’s a common misconception that having no previous credit history is a good thing. However, lenders can’t see how you handle credit without any evidence. It can be hard to get a car on finance but without a credit check being performed but most lenders use a soft search that won’t affect your score. You can start to build a small credit history by using a credit building card to make small purchases on and paying them off on time and in full each month. Alternatively, something as small as getting a mobile phone contract in your name and setting up a direct debit to meet the repayment each month can build a credit history.
- Make payments on time.
If you currently have finance or credit, it’s important that you focus on these repayments first before you look to open new credit accounts. The easiest way to increase your credit score is by keeping on top of repayments and showing evidence that you can meet deadlines. It can be a good idea to set up direct debits for any payments you need to make so they are never missed. If you are struggling with your current repayment schedule, you should never miss the payment and instead speak with your lender who provided the loan and see how they can help.
- Consider hire purchase.
If you’re struggling to get a car on finance, you may be applying or the wrong kind of agreement. Hire purchase deals are never guaranteed but they could be more accessible for bad credit applicants. This is because hire purchase is a form of secured loan and means the lender owns the car throughout the agreement. If you fail to stay up to date with your repayments, the lender has the right to take the car off you so it lessens the risk, and they can use the car as collateral. This shouldn’t be taken lightly though and missed payments or having the car repossessed can lead to much more serious financial implications and massively affect your ability to borrow money in the future.
