*This is a collaborative guest post
So you want a new car but are not quite sure how to finance it? Like most, you don’t have the cash, and the best option for you is to apply for car finance to cover the upfront costs so you can drive away in your new set of wheels without the hassle of waiting and saving.
For some people, their first stumbling block towards purchasing a new vehicle comes down to how well they manage their personal finances. You might have missed a payment on your mortgage or a credit agreement, have a default of CCJ on your account or haven’t updated your details on the electoral roll.
Here we’ve rounded up 5 ways to improve your credit score to give you the best chance at getting your car finance application approved:
What is a credit score?
Before you think about improving your credit score, you need to understand what it is.
A credit score is typically a three-digit number (or 0-5 for TransUnion) generated from information held within your credit report. Depending on which credit reporting agency you are checking your credit score with, this number will represent how “creditworthy” you are.
Your credit report or file zooms in on your credit and financial history over the past six years. Any credit agreement you have taken out during those six years will appear, such as credit cards, mortgages, loans, bank accounts and car finance. But more than that, your credit report shows if you paid these off in full, on time, early or late – all affecting your overall score.
If you have any, CCJs, IVAs, bankruptcies and other debt-related issues will flag up on your credit report for any prospective lender looking at your file.
While each lender will adhere to their own set of criteria, they will look to the three main credit reporting companies: Experian, TransUnion or Equifax, as a basis for any decision they make. Where you might get accepted by one lender for a service or product, another one may reject your application based on how your credit file matches up to their criteria.
Ultimately, a lender will look at your credit score to determine:
- Whether you are a viable candidate to lend money to in the first place
- How much they are willing to lend you
- What interest rates to set on the amount you borrow
Read on to find out how you can improve your credit score:
- Pay your bills on time
Missed payments are one of the biggest red flags for lenders to see on your credit report, and just missing one is enough to impact your score.
If you find that managing your payments is becoming a challenge and you forget to pay your bills on time, consider setting up a direct debit on a set day of each month (such as payday) to help you keep on track.
However, if you find yourself repeatedly falling into the trap of missed payments, you may want to look at your overall spending habits. Is there something you’re spending your money on that’s not essential? Or perhaps, you’re paying out a direct debit each month that you’ve completely forgotten about.
Regularly checking your accounts and payments will help you to budget your finances so that you avoid missed payments altogether and boost your score in the process.
- Make sure you’re on the electoral roll
If you’re registered to vote, then you are already on the electoral roll. However, you do need to make sure that your details are up to date and match your current address. So if you have recently moved home, update your details as soon as possible.
Registering your details for the electoral roll is easy. Within a few short minutes, you’ll vastly improve your credit score. The longer you live at an address, the better your score will be.
- Regularly check your credit report
Your credit report belongs to you. Therefore you can look at it as often as you like without impacting your score. Making it a habit, you will be able to spot any mistakes and potential fraud quickly if there’s a credit application you don’t recognise.
Regardless of how small the error, any false information can make a big difference to your overall credit score. So if you spot anything, contact your bank, lender or the relevant credit reference agency directly to see if they can rectify the problem on their end.
- Don’t make too many applications
Each time you make a credit application, there is a mark left on your credit file after the lender has performed a hard search. If you apply to several lenders within a short space of time, you’ll damage your credit score. It will also make it look like you can’t manage your debt, and may suggest that you don’t pay back loans on time.
Where possible, try and leave at least a three-month gap between applications, especially if you have recently been rejected by a lender.
If you are struggling to improve your score and need a new car, get in touch with a specialist bad credit car finance company to see how they can tailor a package that can accommodate your needs without causing further harm to your credit score.
- Avoid using all your available credit
Lenders love a responsible borrower, and the best way to show them that is you is to use a smaller percentage of the total credit available to you.
So instead of maxing out your credit card each month, try not to use more than 30% of your allowance where possible, and you’ll quickly see an improvement in your score.
If you have any outstanding balances that you could pay off early, look into paying them off in full ahead of the end of your agreement.
Spotted a new car you like? Cleaning up and improving your credit report will get you much better deals on your car finance and get you behind the wheel in no time.