If you are on the search for a new car finance arrangement, then you don’t need to be told that your credit score plays a large role in this process – both in terms of whether your application is accepted, what deals you are offered, and also how the ongoing arrangement will affect your rating moving forward. To have an application for a finance agreement accepted, you will need to be approved for credit.
You will need to be assessed before being offered a deal for car finance. This means that you will be subject to a credit check, in which your credit score and history will be assessed to determine your eligibility for a finance agreement. If you have a good credit score then this shouldn’t be a problem at all – you will likely be offered deals with great value and will soon be on your way to getting the keys to your next vehicle.
If you have a poor credit score, however, it can often become very difficult to secure the finance you need for your new car. Bad credit can be caused by a wide range of different issues, but the result is often very similar: bad credit makes it more difficult to secure finance and have an application accepted, and you are more likely to be offered deals with higher interest rates. This is because lenders want to minimise the risk of any deal on their part.
So how will a car finance agreement affect my credit score?
Car finance will impact your credit score, because entering a car finance deal means making a commitment to make major payments on a monthly basis. This means that your car finance deal can become a very important factor that affects your credit rating. While this may sound worrying, it is important to note that this goes both ways: if you remain responsible and strict with your repayments, your car finance deal will actually have a very beneficial effect on your credit rating.
It is always a good idea to keep your applications to a minimum, or choose to work with a lender that offers a two-step pre-approval system. This route means that the initial application won’t harm your credit rating at all – it is only affected if you make several applications in a short space of time.
In a two-step credit check process, you will first be subject to a soft credit check – one that assesses your eligibility without actually appearing on your credit history. This is incredibly useful for anyone with poor credit that is worried about multiple searches appearing on your record. If the initial soft credit check comes back positive, only then will you be able to submit to a hard credit check to assess eligibility.