If you’re looking to finance a car, you might be wondering whether your credit score is up to scratch.
Like applying for any other form of credit, your credit score plays an important role as to whether you’re likely to be accepted or not. Taking out car finance is a big decision, for both you and the lender – as you’ll both need to feel confident you can keep up with the repayments down the line.
Even if you’re convinced you can manage the monthly repayments, the lender needs to see evidence that you can handle your debts… and this is where your credit score comes in.
So, what credit score do I need to have?
In short, there is no specific number you need to work towards. In fact, you don’t even have one single credit score – lenders all score you individually, including car dealerships.
It’s easy to get hung up on your credit score, but when it comes to car finance, what really counts is your credit history. Your score is the three-digit number which reflects how good you are at handling your debts and managing your accounts – which is all detailed in your credit history.
Whilst your score could act as a general guideline for lenders, your history of borrowing and your lifestyle could also be key factors in their decision. Whatever kind of car finance you’re looking at, we’ll take a look at what lenders could be looking for when you’re applying to finance a car…
Experience of borrowing
If you’ve never taken out a credit card or a loan before, you may struggle to get accepted for car finance. This is because you’ll probably have what’s called a thin credit history – which means lenders are unable to see how good you are at managing your debts.
Your public records
Any public court records – like a CCJ or a bankruptcy – will show up on your credit history. These could affect a lender’s decision about accepting you for car finance, as they may suggest you’ve had issues dealing with debt in the past.
Typically, these will stay on your report for up to 6 years before they get removed. So, if you’re looking to finance a car in the near future and these are on your credit file, it could be wise to hold off from applying for car finance until they’re cleared from your report – or at least seen to be less recent.
Your other accounts
Some lenders conduct a hard credit check into your credit profile and may see the number of accounts you have, the total amount of debt you have, and how you manage to repay them. If you have lots of other financial commitments, you could get declined for having access to lots of credit – as they could worry you won’t be able to make the repayments.
They may also see whether you’ve defaulted in the past. If this is the case, it may be a good idea to clear off your debts before you finance a car.
When it comes to financing your car, it’s not all about your credit history. Lenders could also ask you what your salary is to help them decide whether to lend to you or not.
If you have a low monthly income, you may struggle to get accepted for car finance, even if your credit score is in a good shape. On the other hand, you could find that your chances of getting accepted could increase if you have a strong income – despite having a less than ideal credit history!
This comes down to what’s called affordability, as lenders will want to work out if you can comfortably afford the monthly repayments with your income.
It’s not just your salary, either – lenders may also like to see that you can hold down a job before agreeing to lend you money.
Lenders are likely to feel safe in the knowledge that your income will be steady and secure, so it may look better if you’ve been in the same role for a while. So, if you’ve only just started a new job, it may be worth waiting a while before you look to finance a car – as this will prove your income is reliable.
It’s not all about your score
So, as we’ve explained above… your score is an important factor in getting car finance, but it may not be the only thing lenders look at. If you’ve got a regular, steady income and you’ve managed payments responsibly in the past, your score isn’t the be-all and end-all.
All lenders are different and lend to a variety of credit scores. So even if your credit score isn’t up to scratch, it may still be likely that you’ll be able to find car finance that works for you.
With that said, it’s worth taking a good look at your credit report to see if you can improve your score before you apply for car finance – as the best interest rates are typically saved for those with a healthier credit score.