If you’ve had issues with loans and credit card payments in the past it may have affected your credit score, meaning that buying a car through finance could be harder or more expensive for you than for others with a better record of repayments.
The good news is that even if your credit score is lower than others there are some things you can do to improve it. In this guide we first explain credit rating and how you can find out what your score is. Then we will run through the steps you can take to improve it.
What is a credit rating?
Your credit rating is based on your credit history, so if you have missed or made late payments in the past this means lenders will be less likely to offer credit to you in the future. Even if they are willing to give you a loan, it may be offered with much higher interest rates.
Steps to improve your credit rating
1. Get a credit report
So we’ve established that a poor credit score has a negative effect on the type of finance you can access, but the first port of call is to find out what your score actually is. Your credit score can be checked via a number of credit reporting companies such as Experian or Equifax. Please note that some credit reference agencies may charge you for providing your score.
The report will show any missed payments, what credit you currently have and if there are others linked to you financially, for example an old joint bank account with ex-partner.
2. Updating your details
Once you have your credit report, it is worth checking it thoroughly and updating any details which are out of date. Severing ties with people in your past that have bad credit and are pulling your rating down by association is one quick step you can take to improve your score. To do this you will need to issue a ‘Notice of disassociation’, once this has been checked by the credit agencies they can remove that person from your file.
The Debt Advisory Service has a detailed blog about notice’s of disassociation which includes what is considered a joint responsibility and what is not. You can read it on the Debt Advisory Service blog.
Another easy thing to update that could have a positive effect in the eyes of the credit scoring agencies is registering or updating your details on the electoral role, this is where the agencies will check for your details so having everything up to date makes it easier for them to identify you.
3. Manage your payments properly
The best way of showing lenders that you can be trusted with borrowed money is by consistently paying back any outstanding finance you have on time.
Eventually this will start to have a positive effect on your reputation with the agencies.
Is there another way to get a loan on decent terms if your credit score is poor?
There are some other ways to raise money for your new car, for example having a healthy deposit is one way of lowering your monthly payments and may even encourage lenders to offer you a better rate of interest.
Some providers may offer the choice for you to add a guarantor to your loan. If you have a family member or friend who is willing to act as a guarantor then you could arrange a lower interest rate. It is a serious commitment on their behalf because if you were unable to pay then the debt would pass to them. However, this is not something to consider lightly, if your guarantor also fails to pay you could both face legal action.
We hope you have found this short guide to financing a car when you have bad credit useful, you can find more details about the right financial product for you in the car finance options section.