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Bad Credit Car Finance

What credit score do I need to be approved for car finance?

Want to apply for a car on finance? One of the biggest questions around car finance is whether or not you need a good credit score to be approved. While a credit score is important, it’s not the only factor lenders look at.

To help clear things up, we’ve got all the details you need on car finance credit score requirements, how you can improve your rating, and the other financial factors lenders evaluate when assessing your loan application.

What credit score is needed for car finance in the UK?

If you’re concerned about your credit score, the good news is, there isn’t a minimum credit score for car finance in the UK.

You don’t necessarily need a perfect credit score to get a car on finance. However, having a higher credit score could improve your chances of getting approved.

Like with any loan application, a good credit score shows the lender that you have managed credit responsibly in the past.

Different companies will evaluate your suitability based on their own policies and scoring systems. Plus, they will take into consideration other financial factors when considering your application.

Simply put, while a good credit score will certainly help your application, approval isn’t based on your credit score alone.

What other financial factors are considered?

So, what else to do lenders look at? As well as your credit score, lenders will assess factors such as:

  • Overall affordability which looks at your current income vs outgoings
  • Current debt repayments
  • Your credit history

Let’s look at these in more detail.

Income vs outgoings

Lenders want to be sure you can afford your loan repayments. They do this by looking at your income and your outgoings and how much you have left over.

Consider this carefully before you apply for a loan – it’s best to check yourself first by adding up your current outgoings and evaluate what you can comfortably commit to paying each month.

This can work in your favour if you’re someone with a somewhat poor credit rating, but have a high income compared to the loan you want to take out. This lowers the risk factor for lenders, as they can see you have the income to meet your repayments.

Current debt repayments      

Lenders will also assess your current debt commitments (such as a mortgage and money owed on a credit card) to see how well you’re managing your current debt repayments, as this indicates your level of reliability.

Lenders will look at something called the debt-to-income ratio, which is your monthly debt payments divided by your monthly gross income, usually turned into a percentage.

The lower the percentage, the better, as this shows you are unlikely to have issues meeting your monthly payments on top of your current debts.

Credit history

Lenders look at your credit history to see if you’ve paid loans back on time in the past. A clear credit history indicates that you are a reliable borrower and will improve your chances of approval.

If you have a County Court Judgement (CCJ) against you, or have been previously bankrupt, this will remain on your credit history for six years.

Getting car finance with a CCJ or bad credit history can be difficult, but not altogether impossible. 

How to improve your credit rating

While there is no set credit score for car finance, it’s still a crucial factor lenders look at.

Here are some steps you can take to improve your credit score:

Register on the electoral roll.

Registering to vote at your current address helps to prove you are who you say you are.

Keep your credit utilisation low – below 30% if possible.

Credit utilisation is the percentage you use of your credit limit. You want to show you use your credit, but aren’t in a position where you rely on it all. Try and aim for below 25 – 30% utilisation.

Make payments on time.

Making all your payments on time shows you are a low-risk borrower.

Pay credit card payments in full every month.

Similarly, making your repayments in full is a good way to increase your credit score. Failing this, you should pay at least the minimum payment.

Avoid moving house a lot in a short space of time.

Residential stability is a factor that can affect your credit score. Living at lots of different addresses can work against you, as it can make your circumstances seem unstable.

For more details, head to our full guide on how to improve your credit score.

The takeaway

You don’t necessarily need a fantastic credit score for car finance, and there is no minimum credit score to buy a car on finance either. We look to support all customer circumstances including those looking for a car on finance with bad credit.

However, though it isn’t the only factor that lenders will consider, it’s still important. A higher score will increase your chances of approval and help you get good interest rates, so take the steps we’ve listed to improve your credit score before you apply.

To increase your chances further, you should also consider the other financial factors lenders look at.

Before you apply for any car finance loan, you should assess your accounts first, calculate your income vs outgoings and check whether there are any bad marks on your credit history that could impact your chances of approval.

If you have a bad credit score and are still unsure about your eligibility, we’re here to help. Head over to our pre-application support and advice page, where you can find the answers you need for common queries.

Want to weigh up your options? Read our complete guide to car finance and find the right type of car finance for you.

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