All you need to know about improving your credit score!
Follow our easy-step guide to improving your credit score and getting better rates when looking for finance products.
What is a Credit Score?
At CarMoney, we want to assist you on your car finance journey. A big part of that is understanding your credit score. Think of your credit score as a three-digit report card that shows lenders how you handle borrowed money. The higher the score, the more likely you will be accepted at better rates for financial products such as loans/mortgages/car finance. It reflects your creditworthiness or how likely you are to repay a loan on time.
Your credit score plays a crucial role in getting approved for car finance, the interest rate you’ll be offered, and even the loan amount. Here’s how:
- Loan approval: A good credit score increases your chances of getting approved for finance by lenders.
- Interest rates: A higher score typically qualifies you for lower interest rates, saving you money in the long run.
- Loan amount: With a strong credit score, lenders may be more likely to offer you a more significant loan amount.
If you need more detail, why not find out more about what a credit score is and how it works.
How to Improve Credit Score?
We often get this question: how do I improve my credit score? Improving your credit score takes time and effort. You will need to work on it over time and build it up to where you want it to be. We have a few simple steps you can follow to help you get your score moving upwards:
Be a payment pro:
Pay your bills on time, every time. This includes phone contracts, utility bills, and any existing credit agreements. Late payments can significantly damage your score.
Register to vote:
Being on the electoral roll helps lenders verify your identity and residency, positively impacting your credit score.
Manage credit responsibly:
Don’t max out your credit cards or take on more credit than you can comfortably manage. Aim to keep your credit utilisation ratio (the amount of credit you use compared to your limit) low.
Go steady with credit applications:
Making numerous credit applications in a short period can be seen negatively by lenders. Try to space out any loan or credit card applications.
Check and correct mistakes:
Get a copy of your credit report from all three major credit reference agencies (Experian, Equifax, and TransUnion) and ensure all information is accurate. Report any errors so they can be corrected.
Consider a credit builder card:
A credit builder card can be a good option if you have a limited credit history. Use it responsibly and pay it off monthly to build a positive credit footprint.
Be mindful of joint accounts:
It could affect your score if you’re linked to an account with someone with poor credit. Consider a separate agreement if necessary.
Follow these guidelines, and you will see a difference over time. You will unlock better rates and offers for all sorts of financial products. But how long does it take to improve your credit score? It can vary depending on your current score and your financial history. But if you follow these steps, you should see improvements in a matter of months.
Good Credit vs Bad Credit
Many people aren’t always sure what a good credit score is. It can be difficult as different credit agencies have different scales to measure credit scores. TransUnion has scores ranging from 0 to 710, with anything from 604 upwards considered good. Experian ranges from 0 to 999, with anything above 881 considered good. Finally, Equifax has a range between 0 and 850, with scores over 670 being classed as good.
Even if your credit score isn’t as high as you would like, you can still get car finance with bad credit. You may have higher interest rates, but it doesn’t stop you from getting car finance.
Car Finance and Your Credit Score
Does car finance improve your credit score? It is not a simple yes or no, but it can boost your credit score only if you repay on time and in full. This will reflect well on your credit report, and keeping up with the repayments for your agreement will show lenders you are trustworthy.
But the reverse is also true: if you take out a car finance agreement and fail to keep up with repayments, your credit score will hurt and bring it down. When looking at car finance, it is vital to make sure you can afford the repayments in the long run. If your financial situation may change during the 2-5 years of the agreement, consider how this will affect your ability to repay the loan.
A Strong Credit Score is Not Out of Reach!
It can be disheartening when your credit score isn’t where you want it to be, but it is always retrievable. If you follow the above steps, you will see an improvement in your creditworthiness. It is also essential to regularly check your credit report and stay on top of the information. Knowing where you stand is half the battle.
If you are looking for car finance with a lower credit score, CarMoney has a panel of lenders, some of which specialise in poor credit finance. Want to know more about improving your score? Use our expert guide to mastering your credit score…
