Can Car Finance Positively Affect Your Credit Score?
Every person who has credit in the UK, or who lives in the UK, has something called a credit score. Your credit score essentially tells lenders how risky it might be to give you a loan. As lenders want you to pay them their money back over the course of a repayment term, lenders will only provide you with a loan if you have a good enough credit score.
If you have a good history of repaying your credit, then your credit score will be good. If you don’t have a good history of repayments, then your credit score might be less than average. You can check your credit score using a credit reference agency, prior to making any finance applications.
The three main credit reference agencies in the UK are Equifax, Experian, and TransUnion (formerly Callcredit). These agencies produce their own version of your credit score, so that you can see how your application might be viewed by lenders. However, each agency uses a slightly different scale.
Credit reference agencies keep information about you so that a lender can consult them before making a decision. This includes: the addresses you have been registered to and lived at; public records such as bankruptcies and Debt Relief Orders; bank account information; home repossessions; financial associations; and previous searches.
Does applying for car finance negatively impact your credit score?
In order to properly answer this question, it is important to know whether lenders have carried out a soft check or a full credit check on your finances. If the company performed a soft check, this is footprint free, and doesn’t influence your credit score.
However, a full credit check will show up on your credit score, including the details of all the organisations that have looked at your file in the last 12 months. Although applying for finance itself will not affect your credit score, applying multiple times within the same year might.
This is because if you have applied numerous times for credit, the loan company will wonder why you have made so many applications and assume you are less likely to pay your loan back. This could mean that they offer you a higher interest rate or outright reject your application.
That being said, some car finance companies can still offer and may even specialise in bad credit car finance, helping you to obtain car finance even if you have been rejected by other lenders. With these lenders, you are likely to have a stronger chance of being accepted for finance.
How can car finance be a good thing for your credit rating?
Once you have a finance agreement, ensuring you make your repayments on time can actually positively affect your credit score. This is because each repayment you make will be seen as proof that you are reliable when it comes to sticking to a finance agreement, and capable of repaying a loan.
However, this unfortunately isn’t an instant improvement. Information relating to repayments can take up to three months to reach credit reference agencies, so it can take a while before you see a positive impact.
Overall, car finance can both negatively and positively affect your credit score, depending on your behaviour and conduct. By proving yourself to be reliable through the repayment of your car finance, you can help improve your credit score over time.
And if you apply for your next car finance deal through a reputable company like CarFinanceGenie, you can be surer of landing the very best such arrangement for you – whatever your needs and wants from a new car.