If you’re looking to get a new car, you may be wondering what your chances are of getting a finance agreement. Car finance is subject to status and there are a few factors that can affect your approval. One of the biggest factors is your credit score and where you stand on the credit scale. It can be harder to get accepted for finance when you have a low credit score or no previous borrowing history. However, you’ll be pleased to know that not all hope is lost, and the guide below looks at how you can increase the likelihood of approval if you have poor credit.
What is poor credit?
Poor credit refers to your credit score and how you’ve handled your finance and credit in the past. Factors such as missed payments, high levels of debt, using too much of your available credit or no previous credit history can all negatively impact your score. Your credit score increases when you have active credit, but you are able to make each and every payment on time and in full and handle your agreements responsibly. Usually people who have good credit have a long-established history of good credit management and only use it little and often.
How does credit score affect car finance?
When you apply for car finance, you will usually have to undergo a credit check to see how you’ve handled your credit in the past. When you have a low credit score it usually indicates that you’ve had trouble sticking to the rules of any previous agreements. This increases the risk to future lenders as you are more likely to default on any future loans or finance.
Can you get approved for car finance with a poor credit score?
Whilst having a low credit score can affect your chances of approval, not all hope is lost! You’ll be pleased to know it can be possible to get a car with poor credit and before you start applying, there are a few factors you could consider working on. Before you look to get any form of credit or finance, you should firstly look at your current finances and see if there is the possibility of affording a car and working out your car finance budget.
1. Check your credit report for any mistakes
Having information on your credit report that isn’t correct can have a negative impact on your credit score and your ability to get finance. Many lenders use the information on your credit report to cross reference the information supplied on your car finance application and if they don’t match up, they may be worried that it is a fraudulent application. It can be worth checking your credit report and making sure all information is accurate and up to date.
2. Work on your credit score
If you have poor credit, the best thing you can do is work to increase your current credit score. If you have any active finance or loans at the moment, you should try to build new habits and make each and every payment on time and in full. If you have a credit card, it can be a good idea to pay more than the minimum amount required each month too. Whilst tying to work on your score, you should also avoid taking out any new forms of credit or finance before you apply for car finance as your score also takes into account how much debt you currently owe.
3. Save for a finance deposit
Having a car finance deposit to put down at the start of your deal can eb really beneficial if you are struggling to get approved. From a lenders point of view, it means that you are putting more towards your finance which increases security and also means they don’t have to lend you as much. A deposit makes the loan amount smaller and can make your finance deal more affordable and even pay it off faster!
4. Reduce any existing debt
Your credit score takes into account how much money you currently owe. Having high levels of existing debt can be negatively impacting your score so it can be a good idea to reduce any debt first before you apply for more credit. Lenders may decline you on the basis that they think you can afford to take on any more finance. Not only does it increase the likelihood of approval, but it also frees up some of your finances and makes your money more manageable.
5. Remove negative financial links
When you take out finance with someone else, such as a joint finance deal for a car, you become financially linked on your credit reports. If you no longer have any active credit with someone you’ve been financially linked to, it can be a good idea to ask the credit referencing agency who provided your credit report to remove them from your file. This is because their bad credit score can also negatively affect yours too.