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Credit history and car finance: what is good, how to improve and why it's important

Finance companies will scrutinise your credit history before approving your car finance borrowing request.

When you go to purchase your next car, the likelihood is you will be looking at using some form of finance to help pay for it.

Over 90% of new cars are bought on finance and it's an increasingly popular method when it comes to used cars too.

Buying on finance gives you the flexibility to customise to your needs and budget, allowing you to spread your costs generally between 24-60 months.

Paying this way means you can buy a better, more expensive car too, as you're not paying for it all in one go; the main benefit being you can spread your monthly costs at a fixed rate.

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However, credit score and credit history are two terms that you would have likely come across when doing anything associated with finance in the past, whether that be buying a car, a home, or even just applying for a credit card or mobile phone contract.

We're here to break down exactly what these mean and what is deemed good, how you improve your score and why it's critically important.

What is a credit score?

If you use your search engine and look for 'check my credit score', you will find numerous companies out there available to help you discover it.

These companies will provide you with a score - generally out of 700 or 999 - and offer you advice on how you can improve it.

First, they will ask you a range of questions based on yourself, your lifestyle, and your previous payment history. These include your age, how much you earn, and whether you've met or missed previous payment deadlines.

Once all of these factors have been taken into consideration, they will give you your score and whether it is good, fair, or poor, as well as what you need to do to make it better.

They will then identify the credit they can offer you, based on your results and then work out the annual interest rate to charge you to borrow credit.

It's really important you identify your credit score before you try to buy a car on finance so you aren't left disappointed - and with a negative report on your credit history - if your score is poor and you are disapproved to borrow anything for the purchase. 

What is credit history?

Although associated with credit score, credit history is different and takes into account various other factors aside from those used to discover your credit score.

Finance companies are able to look back at the previous six years of information from credit reference agencies to determine your eligibility. 

Aside from the details you would have provided to discover your credit score, your history will take into account factors such as living and residential status, whether you have a guarantor, and your current employment status.

Your income will be one of the more key factors, as it's possible your income now has changed from what it was several years ago when you may not have had a particularly good credit score.

All of this will help finance regulators assess whether you are able to be offered a loan, and if successful - or not - will appear on your future credit reference history.

How to improve your credit score

The first thing you can do is work to wipe out any outstanding debt, ensuring not to make any late payments or miss them entirely as this will have a negative impact on your score.

Any missed payments will stay on your reference history for six years and could be the make or break decision for a lender to approve or disapprove your loan request.

It's possible to find mistakes on your credit file, such as missed payments that were on time or fraudulent credit activity and if you notice this, you should notify the lender or credit reference agency who will be able to sort it out for you.

Always ensure your details are up to date, including your address, occupation, and annual salary. It could count against you if details are missing or do not match what the lender sees on your credit file.

You should also avoid bouncing from one lender to another if rejected. Of course, just because one lender has said no doesn't mean another won't say yes. But every application will be on your credit history and may go against you down the line, even if you have sorted everything out.

Ultimately, you are best placed to know what shape your credit history is in and whether you are in a good position to be approved. 

While finding out what your credit score is may give you some clarification on that status, there’s far more to the decision-making process than just that.

How to keep your good credit score up

If your credit score is in a good way now, it's really important to keep it that way, even if you aren't looking to borrow anything for a while.

Always making repayments on time will be a sure way to keep it at the same level it is, or even improve it.

It's likely your credit reference agency will reach out to you at least once a month, so it's a good idea to take some time to log into your account to see what details they have and keep an eye on anything that doesn't look right that could impact your score.

What happens if you're refused a loan 

Before applying for a loan, you should research just how likely you are to be approved. That way you know exactly what to expect and if the chances are slim, you know to avoid making a request until you've improved aspects of your credit score and history.

If you are rejected, it may be a case that some details are incorrect and just need to be updated, such as your address. Ensure you are on the electoral roll so that lenders can easily verify your identity.

Car Credible and credit history

At Car Credible, you can input your car finance deal irrespective of whether you have a good, fair, or bad credit history. 

We want to give you the opportunity to view your car finance deal clearly and simply in one place, giving you a personalised dashboard to keep up to date with everything.

We send monthly notifications to keep you on track and give you an understanding of your car's depreciation value, equity position, early settlement figure, and more, which down the line, can help you when negotiating your next car finance deal.

Our Affordability Calculator also gives you the chance to plan and budget for your next car by identifying and tailoring your car finance plan to suit your needs and budget.

Simply enter the price of the car you'd like to buy, plus the length of term you'd like and how much you'd ideally like to pay per month.

Our algorithm then calculates exactly what you can expect so you're not going into your next deal blind. We'll even offer suggestions on how to pay less in interest over time or how beneficial it could be by reducing the term.

We're here to help anyone with their car finance deal now and in the future, regardless of credit history. 

Start your journey today by signing up via the banner below and see how we can help you.

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