Your credit score can make a big difference when it comes to getting finance on a car. But lenders don’t only look at your credit report to assess whether or not to lend to you. Your credit score will also determine what sort of interest rate you can get.
New research from Uswitch.com has found that on some cars this difference could set you back as much as £35,000! Let’s take a look.
What does a bad credit score mean for getting finance on a car?
Having a bad credit score can impact lots of areas of your life – including car finance.
Uswitch’s study looked at the cost of buying some of the UK’s most popular cars on finance for different levels of credit score.
So for example, if you wanted to purchase a Ford Fiesta, the base model would cost you £16,645. Buying it on finance with a four-year repayment period and an excellent credit score would result in a total cost of £20,014. However, the cost would increase to £27,073 if you had a bad credit score. That is a difference of over £7,000.
Understandably, the difference is even greater when you look at more expensive models. A Land Rover Range Rover would cost someone with an excellent credit score £100,680 over four years. This jumps to £136,189 for a driver with a bad credit score. That’s a difference of £35,509.
How can I improve my credit score?
If you are in a situation where your credit score is less than squeaky clean and you are looking to take out finance on a car, then there are some simple things to do to improve your score.
- Register to vote – Being on the electoral roll with your current address can make a big difference to your credit score. It means lenders can easily check you are who you say you are.
- Consider your credit utilisation – Lenders look at your credit utilisation. This is how much credit is available on your credit cards. The general rule of thumb is that if you keep your balance below 30% of the credit available, this will not hurt your credit score. If this creeps above 50% to 70% then ‘amber flags’ start to show up on your credit report.
- Make your payments – The best thing you can do for your credit score is to make sure you pay all your bills on time. Lenders are looking for responsible borrowing behaviour. So if you can show months of making regular payments, you put yourself in a strong position.
- Check your credit report for errors – How many of us have actually looked at our credit reports? Before you can start improving your credit score, you need to know what is on your report. If you check your report and there is an error, then you can inform the credit reference agency and ask them to make a correction.
Where can I look for car finance deals?
As with any type of financial product, it is best to shop around and try to find the best rate for you. If you have put yourself in a strong position with your credit score, then the likelihood is that you will be able to access more competitive deals.
If you know the make and model of the car you want to buy, then using a comparison site can also help you to look at packages side by side.
The one thing to bear in mind is that while a car dealership will have its own offer, this may not be the cheapest. So try to remember to look at the total cost of the finance package. Also consider any restrictions such as a cap on your annual mileage.