If you’re planning to finance any purchase, whether it’s your next new car, an upgrade to your kitchen, or even a new sofa, your credit rating is vitally important.
This is your financial footprint, giving potential lenders an insight into your financial history and letting them know whether you’re a good candidate for finance.
Companies such as Experian and Equifax work closely with all major banks and financial companies to create and store a record of your financial history. This is often called your ‘credit report’, detailing everything from late credit card repayments and missed loan instalments, to any County Court Judgements (CCJs) that have been filed against you.
Many factors can influence your credit report and if you’re hoping to secure the most competitive car finance deal, an excellent credit report will significantly increase your chances of being approved.
What if you’ve never applied for credit before?
It’s wrong to assume that because you’ve never had to borrow money in the past and you have no missed payments, you’ll automatically have a good credit report. In fact quite often, the opposite of this is true.
In the eyes of many potential lenders, having no financial record is almost as bad as having a poor financial record. With no repayment history to judge you on, financial companies will be unable to ‘score’ your behaviour.
Credit scoring is an automated process used by the majority of lenders to help decide who they lend money to. Many factors are taken into account, including where you live, the job you have and, of course, your credit report. An empty credit report raises more questions than it answers and you may find any application you make is declined as a result.
Lenders need to be sure that if they’re going to finance the purchase of a car worth thousands of pounds, you’re able to repay their loan. Although you might know you’ll easily be able to afford all the repayments, nobody else knows this. Without an active credit report to prove this your word isn’t enough, so it’s your credit report that lenders use to help paint a picture of who you are.
Potential employers can also check your credit record
It isn’t just your purchasing power that is influenced by your credit report. It could improve your employment prospects too.
A growing number of employers run a pre-employment credit check as part of their recruitment process. This is mainly influenced by the kind of role you apply for and the data you’d be handling in the job. If you want to work in a bank you’ll definitely be subjected to a credit check. Handling other people’s money on a daily basis carries a lot of responsibility, so you’ll need to be able to show your employer that you can at least keep your own finances in check.
This can also apply to jobs within similar sectors and industries, including insurance, legal, security, education, even construction and customer service.
How to improve your credit score
If you’ve been refused car finance in the past, or you’re worried about your credit file reducing your chances of being approved for finance, don’t panic.
It’s natural for young drivers to want a car of their own and to use finance to help them buy it. There are a number of things you can do to boost your credit score.
- Plan ahead by building a good credit history from the start
Starting to build your credit report early is important. Naturally, I’d never encourage you to take out unnecessary debt, but you can start small with a credit card from your bank. These credit cards usually have small limits and a high interest rate, and are specifically designed to help you build up a promising credit history.
Although you should never use these cards for large-scale borrowing, if you spend a small amount each month and pay it back in full on time, this will help you create a track record of good financial behaviour.
- Close credit card accounts you no longer need
When assessing your suitability for finance, lenders don’t just look at your current levels of debt; they also consider how much credit you have available. Having credit cards with high limits can make you seem like a potential risk, as using this large amount of available credit could quickly increase your debts.
Lenders will consider the likelihood of this happening and whether you’ll then be able to meet all your repayments. So if you have a number of unused credit cards with high limits, I recommend you close them. Or at the very least, have those high limits reduced significantly.
- Make sure you’re registered on the electoral rollYour credit file will show where you’re registered to vote and lenders will use this information to help validate your address. You need to make sure you’re registered at your current address because if you’re not on the electoral roll your address can’t be confirmed, and you’ll find it extremely difficult to get credit.
Likewise, if you’re registered to vote at an old address, or your electoral register details are inaccurate; this will negatively impact your ability to obtain finance.
Registering on the electoral roll at your current address is a simple but crucial step, yet it’s one which so many people overlook.
- Don’t apply for lots of finance
If you apply for finance and get turned down, avoid making the mistake of applying again…and again, and again.
Each time you apply for credit, lenders consult your credit record and a ‘search’ is registered. The more times you apply for credit, the more searches get registered and lenders often see multiple attempts as an act of desperation. Or worse still, attempted fraud. They will often decline your application as a result.
Of course, nobody can guarantee you car finance. However, if you spend a little time researching before jumping in feet first, you’ll have a good chance of landing a finance package that’s ideal for your circumstances.
Stoneacre Motor Group specialise in helping customers procure car finance with bad credit and use ‘soft searches’ (a search that won’t register on your credit report) to give you a good idea of whether you’re a suitable candidate or not, without this showing on your credit history.
To help, they’ve also created a visual aid to point you in the right direction to building a great credit profile. Check out their handy infographic and ensure you stay on the road to good credit.