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Dec
Your credit score will play a crucial role in your car finance application. Your credit can impact the terms and the cost of your car finance deal, resulting in savings or higher costs, depending on your score.
In this blog, we’ll explore what a good credit score actually is, how it can impact your car finance options, and steps you can take to maintain or improve your credit rating for better financial outcomes.
What is good credit?
A credit score will be used to determine how reliable someone will be in paying back their debt. If someone has good credit, this suggests they are able to successfully manage their debt and make their necessary repayments. As such, people with a good credit score will typically be able to access better borrowing options.
What counts as a good credit score will vary depending on the credit agency. Experian provides a score between 0 and 999; a ‘good’ score is classed as a score between 881 and 960, with an ‘excellent’ score being above that. Equifax will give a score between 300 and 850, with a ‘good’ score being between 670 and 739, a ‘very good’ score being between 740 and 799, and an ‘excellent’ score being between 800 and 850.
How does good credit impact car finance?
A good credit score can significantly affect the car finance deals available to you. Lenders typically view borrowers with strong credit as low risk, which often results in better terms and conditions.
For example, those with good credit can often access lower interest rates. This means you can pay less over the loan period, with lower monthly payments and a significant saving over the total cost of the loan.
Another benefit of a good credit score for car finance is that you’ll generally find it easier to be approved for a finance deal. Lenders are more likely to offer loans to borrowers with strong credit histories, as they have a proven track record of repaying debts, reducing the risk to the lender. This can be especially beneficial if you’re applying for a higher loan or if you want car finance for a premium vehicle.
Another advantage of good credit is that you’ll be in a better position to negotiate improved terms for your car finance. You may be able to access a longer repayment term, which can reduce your monthly costs, or you might find you can have fewer restrictions attached to the loan, meaning greater flexibility for you.
What’s the difference between good credit and bad credit for car finance?
Having a poor credit score doesn’t mean you can’t access car finance – there are plenty of options for bad credit car finance. However, a better score will typically mean you can access better terms.
For example, a borrower with a good credit score could potentially access car finance with interest rates as low as 3-5%. In contrast, someone with a poor credit score might see interest rates climb to 15%, vastly increasing the overall cost of the loan.
Similarly, someone with good credit could negotiate minimal or no deposit car finance, whereas someone with bad credit might need to pay a larger deposit in order to secure their loan.
Having good credit can not only reduces costs but also expands your options for lenders and car finance deals, which will make it easier to find a plan that suits your needs. It can be helpful to dedicate time to improving your credit score so you can benefit from substantial savings in the long run.
How to maintain good credit
Improving or maintaining a good credit score requires some effort, but the rewards can be worth it.
In order to keep a good credit score, you should regularly review your credit report to ensure that it’s correct. Look for any errors, such as a missed payment that didn’t occur, or incorrect account details, and let your credit agency know if anything is wrong.
You should also aim to always repay your debts on time, including your car finance, other loans, and credit cards. Being consistent can help you to maintain a good credit score. You should also aim to reduce how much debt you’re paying – having too much can negatively impact your score. You should aim to keep your credit usage below around 30% of your available limit.
You should aim to only apply for credit when necessary. Where possible, space out your applications – applying for too much in a short space of time can negatively affect your credit score.
You should also be aware that if you have a joint account, someone else’s credit score can affect your own. Take care to manage joint accounts responsibility and remove people from your credit report when you are no longer associated with them.
GetCarFinanceHere can help you to find the best car finance deals. Our expert team will look through all the options from our network of lenders to find the right car finance for your specific circumstances. Apply for car finance online today or contact us for more information.