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Impact to credit scores when applying for car finance

In this article, we want to help you understand what impact applying for car finance could have on your credit score. Firstly we’ll go into what a credit check is and what they’re used for. We’ll then look at the difference between a soft and hard credit check, and then finally look at what options are available for those who have either no, or a bad, credit history and need help with their car finance options.

What is a credit check?

A credit check happens when your credit report is assessed by a lender with the purpose of finding out information about your credit history. This information is used to assist in the decision making about whether to offer you car finance or not.

Your credit report provides detailed information on how you’ve handled credit in the past, whether you’ve paid your bills on time and how much outstanding debt you may have.

Carrying out a credit check allows lenders to make a decision on whether you’re likely to repay the finance or not. The better credit score you have, the better APR you are likely to be offered which means lower monthly repayments. That said, we work with a number of lenders who specialise in bad credit car finance which we’ll go into a bit more detail below.

What are soft and hard credit checks and what’s the difference?

A soft credit check is a first look at certain information on your credit report. Lenders do this to decide how successful your car finance application would be without conducting a full, more detailed, assessment of your credit history.

The most important thing to be aware of is only you can see a soft search on your credit report. Soft searches aren’t visible to lenders, so they have no impact on your credit score, or any future credit applications you might make. It also doesn’t matter how many soft searches you have, whether you have 1, or 100, these still have no impact on your credit score. A soft search might also be known as a ‘quotation search’.

When you apply for car finance with Zuto, a soft search is done initially to enable us to match you with one of our lenders. If you’re accepted for car finance, and are happy with the APR and monthly repayments, its at that point the lender will need to do a hard credit check – we always get your consent before conducting the hard check so no need to worry.

A hard credit check happens when a lender conducts a full, more detailed, search of your credit report. The main difference with a hard search is each check is recorded on your credit report, so any lender searching it will be able to see that you’ve applied for credit.

The more credit applications you make, in a short space of time, which result in a hard search, the greater impact it will have on your credit score and likelihood of getting credit in the future.

Can I apply if I have no credit history?

We know that some customers have no credit history or have found themselves in financial difficulties in the past meaning their credit score is lower than the average. But that doesn’t mean you have to give up on getting car finance. Zuto work with a number of lenders who specialise in bad credit car finance.

The advantage of choosing Zuto for your car finance needs is you can apply without impacting your credit score. Understanding whether you’ll be accepted, with only a soft credit check needed, is important for those with an already low credit score.

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Only a soft credit check is done when applying for car finance with Zuto

Written by

Mike Barlow

Content Manager

Mike has worked at Zuto since 2018 and uses his experience within the industry to help customers understand the ins and outs of car finance.

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