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Does car finance affect your credit score?

Applying for any type of credit arrangement can have an impact on your credit score. Here’s more on the impact to credit scores when applying for car finance.

What is a credit score?

A credit score is a system used by lenders to help work out how well they think you’ll be able to handle credit and manage repayments. Your credit score helps to determine your eligibility for a loan, how much you can borrow, and the amount of interest you’ll be charged.

Credit scores are used as part of the application process for all types of credit agreements, including car finance deals, mortgages, and everything in between. Different lenders have different scoring systems, but all will be based on the information held on your credit file along with your current circumstances.

What is a credit check?

A credit check is when your credit report is assessed by a lender to help them find out more about your credit history. They’ll then use this information to give you a credit score based on their lending criteria. This information is used to help them make a decision on whether or not to offer you car finance.

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 your credit score, the lower the interest should be on your finance. This can help lower your monthly repayments. 

Having a bad credit score doesn’t necessarily mean you’ll be turned down for car finance, but you’ll usually be charged a higher rate of interest, which means higher monthly repayments.

At Zuto, 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 lender’s 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.

Only you can see a soft search on your credit report. No record of a soft search will be visible to lenders, which means this type of search won’t affect your credit score or any future credit applications. 

A soft search might also be known as a ‘quotation search’ and it doesn’t matter how many soft searches are carried out on your file, there’ll be no impact on your credit score. 

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 happy with the interest rate and monthly repayments, it’s 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 with a hard credit search you make, the greater impact it will have on your credit score. Having too many hard searches on your file in a short space of time can negatively affect your credit score and your chances of getting credit in the future.

What checks are done for car finance?

When you apply for car finance, the lender you’re applying to will want to know as much as possible about your current financial situation, along with details of how you’ve handled credit in the past. This will help them work out how affordable the finance is and how likely you are to keep up with repayments.

Lenders might first run a soft credit check to give you an initial decision before running a hard credit check to help them make their final decision.

The following checks will also be carried out by your car finance provider:

  • Proof of identity and personal details
  • Driver’s license
  • Address and address history
  • Proof of income
  • Employment details and history

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. At Zuto, we 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.


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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