Have you had your application for car finance refused or declined? If the finance company has said you should refer to your credit report then it will most likely have something to do with your credit profile or other bad credit related issues. We have put together a few explanations to help discover why you may have been rejected.
You have not had any credit/borrowings from lenders in the past
Some people assume that because they have never borrowed money in the past, they must have a good credit rating. Without any borrowing history, it makes it difficult for lenders to assess how much of a risk you are.
If you have never borrowed, your credit history is probably very short or non-existent. This will make it difficult for a lender to assess whether or not you are likely to repay what you borrow from them. Consequently, you may find you are turned down for market-leading credit cards and loans – even if you could comfortably afford to pay them back.
Similarly, customers who borrow small sums or always repay their credit cards in full each month could find it harder to get new credit than those with larger, long-term debts. This is because companies like lending to customers who will make them money – and borrowers who rarely pay interest on their borrowings are unlikely to be profitable.
Most car finance companies favour a borrower who has a history of debts that they have repaid responsibly and prefer customers with credit reports to support that they can manage credit agreements.
This means that anyone with a bad credit history may find it difficult to get car finance at a competitive rate.
Banks share details about customer overdraft facilities in their current accounts, and utility companies share their data on credit reports, this is an opportunity to start to build a positive credit history.
You do not match the lender’s basic criteria or new customer profile
Different car finance companies will use unique ways to work out whether they will lend to you. They may target a certain criteria and you may not fit those application conditions.
Lenders like to see long term employment history, long term record with the same bank and long term residential history, ideally owned rather than rented on finance application forms.
There have been too many recent searches on your credit report
A search against your credit file will be performed each time you apply for new finance, this leaves a ‘credit search footprint’. Applying for credit from several lenders in a short space of time can appear as if you are building up too much debt even though you aren’t actually taking out finance on the products.
Car finance companies could take this to mean that you are already struggling with too much debt, desperate for money or even fraudulently building up credit by using another person’s identity.
You have had financial issues or difficulties in the past
Any late or missed payments stay for three years on your credit profile and will lower your credit score and may stop you securing any future financial agreements due to bad credit, so even if you are financially responsible today, “good credit” lenders may not approve you due to payment issues in the past.
Taking out credit agreements and failing to stick to the terms of the agreement that you signed up for will give you bad credit.
If you do find yourself in financial difficulty and you can no longer manage your debts, it is better to be up front rather than missing repayments and contact your lenders to inform them and ask for help as soon as possible.
If you have defaulted on credit agreements in the past, which normally means you are three months in arrears, then this will really affect your credit rating. Try negotiating with your lender and offer to pay all or part of the outstanding debt and see if they will remove the default from your credit report.
If you have been declared bankrupt, entered into an Individual Voluntary Arrangement (IVA) or have a County Court Judgement (CCJ) made against you it will negatively affect your credit rating and will take a longer period of time to repair than late or missed payments on your credit report.
If you have had a County Court Judgment against your name, that will remain on you credit file for six years unless you have repaid the full amount of the CCJ within the first month. Bankruptcy restrictions may also remain for up to six years on your credit record too.
If you have lost your job, going through a divorce or had an illness that affected your ability to make repayments then Credit reference agencies allow you to add an explanation of circumstances in your credit report.
Joint finance with someone with a bad credit rating will affect your rating. If you go your separate ways make sure you , notify the debt agencies.
If you have large debts then this could affect your ability to borrow more, as it could appear that you are already struggling with the amount you currently owe.
You could have errors on your record, so it’s important to report any mistakes as soon as you spot them.
Make your repayments on time and pay off your accounts early if you can. This shows that you are a sensible borrower. If you are using savings to pay off debts, make sure you keep enough cash in an easy access savings account for emergencies.
Avoid expensive credit repair companies, you may see adverts from firms that claim to repair your credit rating. Most simply negotiate with any companies that have sought County Court Judgments against you. Others claim they can do things that legally they can’t and some may even encourage you to lie to the credit reference agencies. Do not even consider using such firms.
Cancel unused credit cards, this also reduces the chances you will fall victim to fraud if they were ever to be stolen.
Make sure all your debts are registered to the correct name and current address.
Stop applying for credit until you have sorted out any problems on your credit record and improve your credit score.
You are not on the electoral register
This is a common reason why people are refused car finance.
Car finance companies use the electoral register to check that you live where you say you live and you are who you say you are.
If you are not currently on the electoral roll make sure you register as soon as possible and check that you have been taken off the roll at any previous address where you may have lived.