Why Your Credit Score is Important
A credit score basically determines whether you can be accepted for finance or not. From your credit score, finance lenders tend to find out whether you are a reliable borrower. This typically involves looking at how quickly or how slowly you have paid off finance installment in previous agreement terms – the slower you are, the lower your score. For new or young drivers, it can be extremely difficult to find a credit broker who can assure that you would be accepted for car finance with very little or even no credit history to go from.
Although most of the time, people may tell you that your credit score doesn’t matter that much when you apply for a car finance deal and that it’s more commonly used when applying for a credit card. But that’s not the case and those people are missing the point of car finance entirely.
The difference between a credit card and vehicle finance is that with finance, you are essentially borrowing money from a lender who can make sure you have the right monthly repayment sum based on your income (a set fee). While on the other hand, a credit card is a type of credit that you typically borrow from a credit company, whereby you must make repayments set by the company, not you.
The Requirements for Car Finance
For you to be accepted for car finance, there are numerous requirements you must meet. Aside from the obvious rule of having a good credit score, one of the many requirements is that you are over the age of 18 years; if you are under 18, you are legally a child therefore you cannot sign a contract. If you qualify to apply for car finance, here are some things to make sure before you go ahead with the completion of your application:
- You hold a full UK driving licence– it can be harder to get car finance holding only a provisional (learner) licence.
- You can afford to pay the monthly instalments – check the sum of each monthly instalment before accepting the deal.
- You have a good credit score– a bad credit score means you won’t be accepted on a car finance agreement.
- You are not in any current debt– if you are currently in debt, finance lenders will not consider your application to begin with.
The Easiest Way to Build Your Credit Score
If you haven’t already applied for car finance but want to make sure you have the best chance of being approved, or if you have been denied car finance due to a poor credit score, the easiest way to build it up again is to go for a small credit card. Usually, credit companies tend to set the first allowance at £200 to make sure that you pay your debt off on time – you’re less likely to get yourself into a mess this way. Once you can prove that you have a means to pay off your credit debt, the company will then increase your limit and you can quickly build your score at the same time.