Having a poor credit score doesn’t mean that you can’t get accepted for car finance. It can be harder to get accepted for car finance with bad credit but there are a few simple steps in which you can follow to help you get approved.
Why is it hard to get approved for car finance with bad credit?
Your credit score plays a big part in getting you approved for finance and your score is based on your credit history and predications for the future. If you’ve had problems in the past meeting your repayment schedule, then lenders can be wary when it comes to lending money to you. They may not have much confidence that you will pay the loan back on time and in full. If you’re applying for car finance with bad credit, you may also struggle to get approved for finance if you have no credit history which can result in a bad credit score. If you have no credit history then lenders don’t know what type of borrower, you are as you haven’t been able to build up evidence of paying back a loan or finance.
What credit checks do car finance providers do?
Most car finance lenders use a soft search credit check before they can get you approved. A soft search enables lenders to take a quick look at your credit file, not access to the full credit report and does not leave a footprint on your credit file. If you are shopping around for car finance, it is recommended that you stick to soft searches only as performing multiple hard search checks in a short space of time can harm your credit score.
How to improve your chances of getting approved for car finance?
Check your credit score
Even if you already know that you have bad credit, it’s best to get into the habit of checking your credit score regularly and fixing any mistakes on your credit file. You should make sure all your information is accurate and up to date and that you are aware of any applications for credit which are listed on your file. You could have been the victim of fraudulent activity if you spot a credit application that you did not apply for.
Improve your credit score
There are a few easy ways in which you can improve your credit score before applying for car finance.
- Prove where you live. Potential lenders tend to favour people who are more settled and don’t move around as much. You can help prove your living address by registering on the electoral roll.
- Make all your payments on time. It sounds pretty straight forward but potential lenders want to see a solid history of you making your payments on time and in full.
- Keep your credit utilisation low. Lenders will also look at the credit you have available to you. If you have multiple accounts which are maxed out, it may indicate that you can’t handle any more. You should only use around 50% and below your current credit limit available.
- Build a credit history. If you’re applying for no credit car loans then you could consider building a credit history before you apply. You could consider a credit building card, a normal credit card, a mobile phone contract or a store card. Use these to make a few purchases and then pay back on time and in full to help build your credit score.
Put down a deposit
Having a deposit to put down for car finance can be beneficial to you and help get you approved. Even just saving up for a car finance deposit for a few months can help to lower your monthly payments. Putting more money in for your finance deal can indicate to lenders that you have good money management and also means you don’t have to borrow as much from the lender.