If you’ve been refused car finance in the past or are currently working on an application with a less-than-perfect credit file, then you’ve no doubt wondered if and how you can improve a poor credit score. The good news is you absolutely can and there are numerous ways to do so, from simple and immediate fixes, through to beneficial changes in longer-term financial behaviours.
Read on to understand why improving poor credit is important, as well as the ways it can be done.
Why should I try to improve poor credit?
Before we talk about how to improve a poor credit score, it’s important to understand why you’d want to. The answer is simple: it could make the important financial aspects, much easier.
The better your credit history, the lower risk you are perceived to be to a lender. This means a greater chance of having your application accepted, but it also provides additional benefits such as lower interest rates, higher credit limits (subject to affordability) and potential access to a wider range of offers when borrowing.
How do credit scores affect car credit?
Just like they would with a mortgage application or any other form of loan, your lender will usually use your credit history together with their own internal scorecards to make a decision on whether they wish to offer you car finance or not.
Your score may be used when a lender looks at when reviewing your credit file. It’s also useful to you as a borrower to get an idea of how your application is likely to be viewed.
What is a good credit score?
As there are numerous credit reference agencies (CRAs) out there using different scoring systems, there is no set answer to this. We can, though, get an idea of what the three major CRAs (TransUnion, Equifax and Experian) might deem a good enough credit score for car finance.
Remember, regardless of the agency – the higher your score, the better.
- TransUnion score from a range of 0-710. A “good” score is considered to be 604-627, while a “fair” score is 566-603.
- Equifax score from a range of 0-700. A “good” score is considered to be 420-465, while a “fair” score is 380-419.
- Experian score from a range of 0-999. A “good” score is considered to be 881-960, while a “fair” score is 721-880.
How can I improve the chances of getting a car with bad credit?
If the numbers above are looking a little daunting, don’t worry – they’re not the be-all and end-all. There’s no denying that accessibility to car finance can become tougher with a bad credit history.
Bad credit car finance specialists may be more suitable as their approach is to look at the bigger picture and understand the context to your credit history. With that in mind, there are a number of moves that you could make to show tangible improvements to your financial behaviours. These will not only potentially improve your chances of getting a car in the near future but also could set a foundation for improving your credit file to a desirable level in the future.
Address the problem areas in your credit file
One of the first things you may want to address. You can get access to your full credit history via any of the three major CRAs previously mentioned – MoneyHelper offers a detailed guide of how to check your credit report in the sources below this article.
Once you’ve got access, you’ll be able to understand and identify the problem areas in your report, and from there you can consider how to make improvements. Indeed, virtually any CRA you have an account with will also make recommendations to you on how to improve your poor credit areas. While you’re there, make sure there are no mistakes and that everything is up to date.
Make repayments on time
If you’re keeping up with scheduled repayments for another loan, it shows a potential car finance lender that you can be trusted to meet your credit obligations. Just bear in mind your current financial obligations and what budget you can afford when it comes to a new finance deal.
Increase your deposit
If you can afford to, upping the initial deposit sum on your car finance deal will show a lender you have a little more capital to play with up front, and therefore maybe are more likely to stick to monthly repayments in the future.
Register on the electoral roll
An often forgotten and very simple helping hand, make sure you’re registered on the electoral roll. When your lender comes to check your credit file, they’ll need to check your name and address. If they can get it from the electoral register, it’ll make things much easier for them,
Avoid links to others with poor credit
Do you have any financial links to others that you no longer need? For example, an old joint account or mortgage from a previous relationship? If you do, and the other party involved has poor credit themselves, this may have dragged you down as well.
You could get these black marks removed from your file by issuing a notice of disassociation. Your CRA will need to do some checks first, but once cleared you may no longer be linked financially to a negative connection.
Review your loan options
Below is a couple of the options that may be available to those struggling to find conventional and competitive finance deals:
- Guarantor loan: a guarantor is usually someone in a stable financial position that acts as your backer for the loan term. Should you at any point be unable to make a repayment, the debt will go to your guarantor.
- Hire purchase: your car will be owned by the lender in a hire purchase, meaning they can take it back at any point should you fail to make a payment. This reduces the risk for the lender, potentially increasing your chances of being approved