Very few of us can afford to stroll into a dealer and pay for a new car with cash. Finance agreements are commonplace, and lenders always do a credit check before deciding on your car finance application. The credit report plays a significant role in their decision-making process, along with other checks such as verifying your identity and address. Credit reports give them lots of details about your credit history, allowing them to decide whether you are a good risk for finance – or not.

How Credit Scores Work

Every person in the UK aged 18 and above has credit score number representing their creditworthiness. Experian, Equifax, and TransUnion are the three main credit reference agencies used by lenders. While several companies offer credit scoring apps or websites, they rely on data from one of the three major agencies. Your credit score reflects your credit rating, usually on a scale of up to 1,000, with a higher score indicating better creditworthiness.

Checking Your Credit Score

The main credit scoring agencies —Equifax, Experian, and TransUnion—must provide you with a free copy of your credit report if you go direct to them. However, you can also opt for paid services from them which give you more information or more detailed access. You can also use third-party websites or apps like ClearScore and Credit Karma, as these use information taking directly from one of the main reference agencies.
By law, the main credit references must give you a copy of your credit report free of charge. They are allowed to charge for extra services such as credit improvement tips, but you don’t have to sign up for these services if you don’t want to.

Applying for Car Finance and Your Credit Score

When you apply for any form of finance, including a car loan, the lender runs a credit check. If you’re using one of those services marketed as finding out whether you’re likely to be accepted, this is a “soft check,” which doesn’t leave a mark on your credit. However, if you make a firm application for finance, the lender performs a “hard check,” which appears on your credit report. Making one application won’t go against you. Multiple applications may suggest desperation for credit, making you appear high-risk to lenders.

Factors Affecting Car Finance Credit Score

There are many factors which influence your credit score, whether for car finance or other loans. These include your borrowing history, late payments, financial difficulties, on-time repayments, and your credit-to-debt ratio. Being on the electoral register at your current address is one of the easiest things you can do to improve your credit record. Lenders will also want to see that you are managing your money responsibly by paying regularly every month, preferably by direct debit. Pay off any longstanding debts and deal with any county court judgements (CCJs). If your problem is that you have no credit history at all and therefore no information for the agency to make a judgement on, it can be useful to get a credit card with a low balance and pay it off in full each month.