Is my credit score good enough to get car finance?

High credit scores and low interest deals go together. But a less-than-perfect score doesn't mean no finance. Here's how to find your score

John Evans
Jul 30, 2019

You’ve read the car brochures and reviews, compared trims and scrutinised economy and emissions figures. But there’s still one more thing you should do before setting out to purchase your next car – check your financial credit score.

Compared with the exciting prospect of driving away your new set of wheels it may sound incredibly dull, but if you have a slightly rocky history with money or even if you think your financial record couldn't be better, you should check your credit score before financing a car.

That’s because a poor credit score could mean you being refused finance for the car you've set your heart on, while a mediocre one may result in you making multiple applications in search of a better deal that will only make your score lower still.

So the advice is: be prepared and make sure you know your credit score before you approach a lender. Keep reading to find out how your score is calculated and what credit scores mean.

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What is a credit score?

A credit score is a rating based on aspects of your personal and financial histories that helps a lender determine how likely you are to repay a loan. These numbers may be unique to individual lenders but they will be based on credit scores calculated by one or all of the three major credit reference agencies (Experian, Equifax and TransUnion) that compile loan and personal data on all of us.

The point is, there is no one, industry-wide credit score for an individual. Instead, there are at least three, plus - potentially - each lender’s own score. However, while these scores may differ between agencies and lenders, what they tell lenders in practice is broadly the same. This means that if you have a strong credit score with one, you're likely to have a high score with the others, too.

How can I check my credit score?

Contact the three credit reference agencies and ask to see your reference file. By law this should be free but they may try to bundle your request into a paid-for service offering regular updates. If that’s the case, contact their partner companies who will let you see your file for free. Experian’s partner is Money Saving Expert's credit club, Equifax’s is Clear Score and Trans Union’s is Credit Karma. 

How is a credit score calculated?

By a reference agency

A credit score is calculated, firstly, by the credit reference agencies. It is based on a report they produce that contains records of your financial dealings and aspects of your personal history.

Financial data includes evidence of current and previous loans, utility contracts (for example, those with energy suppliers) and phone contracts, plus your repayment history concerning them. If you’ve missed repayments or defaulted on debts, these will negatively affect your credit score. Having multiple bank and credit card accounts will also affect your credit score, since they increase your exposure to additional lending.

In terms of personal history, a credit score will assess your employment status (out of work, employed or self-employed) and address (whether you have one and how long you’ve lived there, and whether you are on the electoral roll - meaning you're registered to vote). The score will also consider financial relationships with people or partners who may themselves have a good or bad credit score. If you have a joint account with someone who has a poor credit score, this is likely to negatively affect your own credit score.

It will also take into account any county court judgements (CCJs) you have been issued for failure to pay fines or debts and whether you have entered into an individual voluntary arrangement (IVA) to clear outstanding debts.

By a lender

The resulting credit scores calculated by the agencies are helpful to lenders because they save them the trouble of poring over your financial and personal history when you make a loan application. Instead, they can spend time asking you about your income and outgoings, so they can see whether you can afford to repay the loan. They’ll also want to know if you have a criminal record, parking or driving fines, student loans and council tax arrears.

Based on what you tell them they’ll combine this information with the agency’s credit score to calculate their own in-house credit score upon which their decision to lend you any money – or not - rests.

What is a good credit score?

As the three major credit reference agencies have their own scoring system, it’s not possible to say definitively. However, they do at least group their scores into bands so that lenders can see what level of risk a customer represents at a glance. There are five bands labelled very poor, poor, fair, good and excellent.

The scores calculated by TransUnion and Equifax range from 0-710 and 0-700 respectively. The higher the number, the better the rating. For TransUnion the band for a person they deem to be a good risk spans from 604-627 but for Equifax it's 420-465.

Experian’s credit scores range from 0 to 999. It defines a good risk as someone with a credit score of 881-960.

Being regarded as a good risk is important because it means that, assuming the lender is also confident that you can repay the loan, you have a better chance of not only getting a loan but one with a low interest rate - meaning that you pay less overall.

Having a fair score (TransUnion 566-603, Equifax 380-419 and Experian 721-880) won't bar you from being given a loan but it's likely to be at a higher interest rate - increasing your monthly payments - and for a lower amount than you might want.

How can I improve my credit score, and secure the loan I need?

You have a number of options to boost your chances of getting the loan you're after. First, you should check your credit record and if you notice any errors or information that needs updating or clarifying, tell the credit reference agency immediately. They will mark your file as being disputed and have 28 days to update the report it or explain why they believe it’s accurate as it stands. Also speak to the lender who gave you the information to see if you can resolve it that way.

Review your finances and see if there are loans you can settle, surplus credit and bank accounts you can close and questionable financial partnerships (a joint account with someone who has a low credit rating, for example) that you can terminate. These actions will be fed back to the credit reference agencies and your record updated and score adjusted, although it can take weeks or even months, rather than days for this to happen.

Also, with reference to the lender’s questions concerning your ability to repay the loan, review your income and costs, and be sure you are being realistic about what you can afford to borrow. Extravagant spending habits on things you don't need could prevent you getting a larger loan on a car you do need, so cutting these costs could be crucial. Presenting a realistic case to a lender may make all the difference to your chances of getting that loan.

Read our guide to how to maximise your chances of being approved for finance to give yourself the best chance of getting the car you want for a monthly payment you can afford.

                             

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