If you haven’t experienced it yourself, you probably know somebody who has.
…that dreaded feeling of being rejected for car finance on a new or used vehicle!
We all know what’s at play. That various credit reference agencies collate data about our borrowing and repayment history. And that it is this data which formulates the ‘credit score’ which is used by lenders when deciding whether we are ‘credit worthy’ or not.
With so much criteria to meet it can be a minefield, but applicants can maximise their chances of being accepted for car finance if they gain an understanding of what factors go into building up a good credit score.
How to boost your credit worthiness.
Check your credit report for errors -
Always be aware that the 'big three' credit agencies - Experian, Equifax and TransUnion - are not infallible to errors. For example, repayments can often be misreported as ‘late’; paid-off loans can often show as still being ‘open’; and it’s not uncommon to be linked to an old address or an ex-partner. More than anything, make sure you’re showing on the electoral register.
You have a statutory right to see your credit report and, if you notice an error, request to have it removed/updated with the reference agency in question.
Tidy up your profile -
Make sure you’re not late on any repayments for an extended period of time - this demonstrates ‘good financial habits’. Consider closing any unused credit cards as this can limit your ability to borrow elsewhere. Multiple 'store cards’ isn’t a great look, whilst an outstanding ‘payday loan’ can invariably kill an application stone-dead. If you are able to, managing down existing debts can significantly boost your credit score ahead of an application.
It’s also worth bearing in mind that having had no, or little, credit in the past is not a good look for your profile…simply because the agencies have less information to judge you on. In these situations, the easiest way to boost your profile is simply by taking out a credit card in your name and/or getting a mobile phone contract.
Don’t attempt to borrow too much -
When applying for car finance, try to be realistic about what you can afford to borrow. Applying for a loan which is comfortably within your means demonstrates financial responsibility and can swing a borderline decision. A decent 'rule of thumb’ is to make sure your monthly income is at least four times higher than your repayment amount.
Also, try to avoid making multiple applications in a short space of time. This can come across as desperate and affect your score negatively.
Don’t lie -
Given the sheer amount of data available these days, knowingly lying on a credit application is invariably a waste of time anyway…but it is also illegal. It could potentially lay you open to a charge of ‘application fraud’ and ruin your chances of obtaining credit for a long time.
It really is best to do everything by the book.