For many years it was believed that having a bad credit score meant that you were unable to get accepted for any sort of loan or finance. Or if you did, it would mean you would pay sky high interest rates. Whilst it can be harder to get approved for car finance with bad credit, it’s not impossible. There are many options available nowadays for people who are struggling to get accepted for car finance. Many finance lenders now take other personal information into consideration, such as current affordability and the ability to put down a deposit. There are a few ways in which you can improve your chances of being approved for car finance even if you have bad credit.
What is bad credit?
Many people find themselves with bad credit but know exactly where they went wrong over the years. You can have a low credit score for a number of reasons such as missed or late payments, declaring bankruptcy, having a County Court Judgement, having a default on your credit file, entering into an Individual Voluntary Arrangement, paying back the minimum amount on a credit card, or being the victim of identity theft. You can also have a low credit score due to having no credit. Many people who have not had any sort of finance or credit in the past expect their credit score to be good. However, your credit score is calculated based on your credit history and if you haven’t taken out any sort of credit in the past, it’s hard for potential lenders to predict what type of lender you will be. There are options available for no credit car loans and you could consider building your credit score and history before you start applying.
Check your credit file
If you are looking to apply for car finance but are worried about having a low credit score, the first thing you should do is check your credit file. You can check your credit file for free using a reputable credit reference agency such as Equifax, Experian or Credit Karma. You will then have access to your full credit file and also a credit score. You should have a look at your full credit file and make sure all your information is correct and up to date. Even having the wrong address can harm your credit score. Your credit file also shows financial partners. You are usually financially linked to someone else if you have taken out credit or finance with them in the past as part of a joint application or a guarantor loan. If you no longer have any active finance with another person, its best to dissociate yourself. If your financial partner as a low credit score, this may be negatively affecting your score too.
Increase your credit score
If you are worried about being accepted for car finance with bad credit, one of the best things you can do is to increase your credit score before you start applying. This can help you to improve your chances of being approved. There are a few easy ways you can improve your credit score.
Register on the electoral roll
Many people aren’t aware that being on the electoral roll can strengthen your credit file. The electoral roll in the UK is a list of names and addresses of everyone in the UK who is registered to vote. Potential lenders can use the electoral roll to check that you are who you say you are and your current living address. Lenders tend to favour people who don’t move around as much as they seem to be more settled.
Pay all your bills on time
This may seem hard if you have struggled in the past with making payments on time. However, even a few months’ worth of paying all your bills on your time and in full can help to increase your credit score. Lenders want to know that you can be trusted to pay back your loan or finance so providing clear evidence of this for a few months can work in your favour.
Limit your finance applications
When searching for car finance, it’s tempting to apply here there and everywhere. However, this could damage your credit score. Making multiple hard search applications in a short space of time could indicate to lenders that you are getting declined elsewhere and you are desperate for credit. If you want to shop around for car finance, make sure you are only using a soft search application, as this won’t be recorded on your credit file.
Close any unused accounts
If you have store cards, credit cards, bank accounts or any other credit accounts that you no longer need, it’s best to close them down. Lenders will look at your credit utilisation and the amount of credit you have available to you. Having a large amount of available credit may put potential lenders off as they can think you can’t handle any more.