Car finance with an excellent credit score

There are plenty of ways to save money on your next car - going for a nearly new or used car is the quickest way to save thousands, and BuyaCar can help you here, or you could simply choose a cheaper model. But there is another way that you might not think about: making sure you have an excellent credit score.

Your credit history affects how happy lenders are to loan you money and how much they charge you for the privilege - the better your credit score, the more likely they are to offer you a low interest rate. Read on to find out what an excellent credit history is, how to get one and how much money it could save you on your next car.

What is a credit history?

A credit history is your financial footprint. This is a record of your loans and contracts ranging from your mortgage to your latest new phone that is held by credit reference agencies. Lenders refer to this when deciding whether to lend you money and on what terms - including how much they're willing to lend you and how much interest they'll charge you.

A credit history also contains information on your spending (for example, how often you are overdrawn and whether you draw cash on your credit card) as well as loan repayments and whether you have missed any. 

Your credit history also contains more personal but no less important indicators of financial health and personal responsibility, including whether you are on the electoral roll (essentially whether you are registered to vote), whether you have any county court judgements for non-payment of fines and even if you are linked to someone with a poor credit history, such as having a joint bank account (if you are, this can negatively affect your credit score).

Why does having a credit history matter?

It matters because a credit history is a way of establishing your future financial behaviour based on your past performance. You may be the sweetest borrower imaginable but a lender has to rely on facts and it gets these from your credit history. If you've missed a number of payments in the past, the lender has to assume that you're more likely to miss them again in future.

As a result, missing payments in the past is likely to result in warning flags being placed on your credit file. The more often you've missed payments in the past, the more hesitant a lender will be to give you money, as the greater the chance that the company won't receive the full amount back.

For this reason and so that lenders have the fullest possible picture of you, it pays to have a full and active credit history. If you've rarely borrowed money or entered into new contract, it's hard for the lender to get a sense of how likely you are to pay them back - and the lender is more likely to be cautious than to take a chance on you.

With that in mind, if you're planning to borrow money to finance a big purchase, it's wise to make sure you have proof of paying back several smaller amounts beforehand. It's no good trying to take out finance for a £35,000 car or a £200,000 mortgage if the only proof of making regular payments you have is three months of a Netflix subscription.

What is an excellent credit score?

Credit reference agencies look at all the information in your history and based on what it tells them about you, award you a credit rating. This rating, also called a score, falls into one of five bands which most of them label as 'very poor', 'poor', 'fair', 'good' and 'excellent'.

Most borrowers have a fair to good credit score which, among other things, means they have an active but well-managed credit history, meet repayments - though potentially with ocassional late payments - and use their credit card responsibly.

Contrary to what you may think, people with an excellent credit history don’t borrow less money than others. Instead, they have an even more active credit history that is even better managed than those people with a good history, most likely making every payment on time, with no slip ups. 

How can I check if I have an excellent credit score?

It’s your right to check your credit history and what’s more, it’s free through credit reference agencies including Experian. You can check this agency’s records with ClearScore, too.

Alternatively, Check My File represents multiple credit reference agencies whose scores you can check for free for up to 30 days from signing up for the service.

How does having an excellent credit score benefit me?

An excellent credit score isn’t just a badge of honour - it’s your key to unlocking lower interest rates and a wider choice of finance deals than people with less impressive credit ratings.

However, having got to this exalted position, it’s important you don’t damage your record by, for example, borrowing more than you can afford or missing payments. Just as having an excellent credit score unlocks the best deals, any financial blips could see you score quickly tumble.

What savings can I make with an excellent credit score?

The cost of a loan is directly linked to the interest being charged, which in turn is linked to your credit score. In short, the better your history and the better your financial position, the lower the interest rate and the less your loan will cost you.

BuyaCar caters for those with everything from a poor to an excellent credit score, with different interest rates charged depending upon the band you're in. Someone with a poor credit score may be eligible for a rate of 18.9% APR, while an average score could make 14.9% APR available, a good history 9.9% and an excellent history 7.9% - potentially as low as 6.9% APR in some cases.

The difference between the lowest and highest rates, therefore, is 12% APR, which can make a significant difference to monthly payments and the overall amount of interest charged.

We picked out a 2018-registered Ford Fiesta with 10,000 miles on the clock and a cash price of £11,000. We compared Hire Purchase quotes for a four-year contract with a £1,000 deposit to see how the numbers added up for those with different credit scores.

Credit score	Monthly payments	Interest paid
Excellent	£248	£1,920
Good	£257	£2,352
Average	£277	£3,312
Poor	£298	£4,320

 

Someone with an excellent credit score can expect to save themselves around £50 per month compared with someone with a poor credit score. Meanwhile, lower interest rates for the driver with the excellent score mean savings of £2,400 over the four-year contract, compared with poor credit finance.

Even compared to someone with a good credit history, having an excellent credit score could save you £432 over the term of the contract - potentially equivalent to the cost of a couple of services for the car - while compared to someone with an average credit history, they could save as much as £1,392 in interest.

These are typical BuyaCar finance rates but those available from external finance providers will be different and potentially much higher in some cases.

How can I get an excellent credit record and access better rates?

The great thing about a credit record is that it is possible to improve it. It won’t happen overnight but managing your finances better, closing dormant accounts, severing financial ties with someone who has a poor credit record and making sure you’re on the electoral roll (simply search 'register to vote' to find the government website where you can do this) is a great start.

If you’re struggling with repayments, contact your lender and ask for help rather than letting the situation get out of control and falling behind with payments, which would likely cause damage to your credit score. Meanwhile, check your credit history for errors that could be harming your score. If you find any, contact the respective agency as they have to correct these.

In addition, make repayments on time and try to repay more than the minimum amounts, each month. Keep your credit card balance to a minimum. Avoid making multiple applications for credit in a short space of time because this makes it look as if you’re struggling to meet your commitments or simply overstretching yourself financially. We all use our overdraft from time to time but don’t exceed your agreed limit.

Do these things and slowly but surely you will move higher up the credit ladder until one day you move from average to good and ultimately to excellent at which point a world of even lower interest rates and better deals opens up to you.