If you have bad credit, you may be worried about the likelihood of getting a car finance approval. The majority of lenders will require you to undergo a form of credit check to see how you’ve handled credit in the past. There are two types of credit check which tend to be the most common. A soft search credit check only allows the lender to take a quick look at your report and credit score and isn’t recorded on your file and nor does it affect your current credit rating either. If possible, you should try to avoid multiple hard search credit checks when shopping for car finance. Hard searches can negatively impact your credit rating and allows lenders access your whole credit report. In many cases it can’t be possible to avoid a credit check but there can be ways in which you can increase a low credit score to help get you approved. 

Why do you need a credit check for car finance?

Car finance lenders use credit checks to calculate the level of risk. Credit scoring is all about future predictions and based on your past future behaviour, lenders can get an idea of how likely you are to pay back your finance on time and in full. Having missed payments in the past or not paying on time can make you more of a risk to lender to and lenders may even decline you if they think they aren’t going to get their money back on time. Interest rates are also determined by credit scores too. Lower interest rates can also be reserved for those with good credit scores as they’re less likely to default on their car loan. 

Can you get car finance without a credit check?

The majority of car finance lenders do require you to undergo a credit check when you apply. There are companies who can offer no credit check car finance deals, but you should be wary of them. These companies often use sky high interest rates to make them more money. For you, it increases the rate of interest and makes car finance way more expensive than it needs to be. You should avoid a car finance deal that doesn’t need a credit check as you’re likely to not get a reasonable and affordable deal. 

Can you get car finance with bad credit?

If you have bad credit, you may be worried about the likelihood of getting approved when a lender performs a credit check. However, it can be possible to get a car finance approval even if you do have a low credit score. You may not be suitable for prime lenders, banks or building societies but there are bad credit specialists who can help get you finance with affordable payments. They can also help you get a deal with a realistic interest rate, so you don’t need to be punished for your past mistakes. They instead look at your current affordability and if you can prove you can pay back your loan, you could be in with a chance of approval. However, there are also easy ways in which you can increase your chances of getting a car finance approval too. 

Ways to increase your credit score for car finance:

  1. Pay your bills on time

One of the most important factors that lenders look at is your ability to make payments on time. Having a long history of meeting all your financial repayments at the deadline and in full can be the easiest way to increase your credit score. 

  1. Fix your credit report

Checking your credit report prior to an application for finance or credit is really important. Many people have a low credit score due to having incorrect information on their credit file. You should check your credit reports and make sure all your information is accurate and up to date. You can do this by contacting the credit referencing agency who provided your credit report. It’s also really important that the information on your application matches your credit file so lenders can verify you and avoid any fraudulent applications in your name. 

  1. Reduce any existing debt

Your credit score is calculated by a number of factors and one of those is the level of debt you have. Having high levels of existing debt can make it hard to take on any more credit and negatively impacts your score. From lenders point of view, they may think you can’t handle another form of credit or finance as you’re struggling to stay on top of your current commitments. 

  1. Build a credit history

You can also sometimes find yourself with a low credit score due to lack of credit history. Many people assume that having no credit is a good thing, but lenders can’t predict what type of borrower you will be if you have no finance history. Where possible, you should try to build a small credit history before you apply for finance to help increase your credit score. You can do this by something as simple as getting a mobile phone contract in your name and setting up a direct debit to meet the payments each month. 

  1. Keep credit usage low

Where possible, you should try to get into good financial habits and keep your credit usage low. The credit utilisation ratio is used by lenders to take a look at your available credit and how much of it you use. maxing out your credit limit can indicate that you’re struggling with your finances and put lenders off. You should try to keep your credit under 50% of the available limit and if you really want to excel your credit score, keep it under 30%. For example, if your credit limit is £100, you should aim to spend around £300 or under. 

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