Does Car Finance Affect Your Credit Score? 


The question of whether taking out a car finance arrangement impacts on a person’s credit score is one that we receive quite a bit here at Car Finance Genie, as you might expect.

And when people do ask that question, they tend to do so from two angles: does it have a negative effect on a person’s credit score, or could it help improve a credit score? 

This isn’t a question that we can answer in just one line, for the simple reason that car finance can spell both good and bad news for your credit score, depending on such factors as how you apply, and whether you keep up with your repayments on the loan. 

Before we go any further – what is a credit score? 

Your credit score will play a crucial role in your ability to borrow money – and the terms on which you are able to borrow that money – over the course of your life. So, it’s no less important to know what a credit score actually is, and what can have the effect of improving or damaging it. 

Basically, a credit score is a tool for assessing and indicating whether a given person is reliable when it comes to borrowing and repaying money. 

The credit score itself takes the form of a three-digit number, and as a person in the UK, you won’t have just one credit score, given that multiple companies (known as credit reference agencies) provide them; the three main ones are Equifax, Experian, and TransUnion

So, while your credit score will differ from one credit reference agency to the next – and even the same ‘score’ does not mean the same thing from one credit reference agency to the next – you can be sure that prospective lenders will be looking at your credit score when deciding whether to lend you money. 

So, will agreeing to a car finance deal be good or bad for my own credit score? 

As we touched on above, it largely depends on your own behaviour as a borrower. If you fail to make your repayments on your car finance deal on time, and your lender takes action against you to recover the money, you can expect your credit score to be severely damaged as a consequence. But if you keep up with all your repayments over time, this will also help improve your credit score over time. 

There is, though, something else to consider: the effect on your credit score of simply applying for car finance. This is where it really helps to know the difference between a ‘soft’ credit check and a ‘hard’ credit check. 

The first, ‘soft’ type of check involves only some of the information on your credit report being looked at; this ‘footprint-free’ check will not impact on your credit score, and lenders won’t even be able to see any record of it having been carried out. But a ‘hard’ credit check is different – it entails the company undertaking the check searching your entire credit report, and every hard credit check will be noted on your file. 

Too many hard credit checks being carried out in a short space of time can have the effect of lowering your credit score, thereby potentially making it more difficult for you to obtain credit for around six months. Lenders don’t like to see that a lot of hard searches have been conducted in a narrow timeframe, as they might take this as an indication – rightly or wrongly – that you are in financial trouble. As a consequence, they may consider you a higher-risk prospect, and refuse to lend to you on the most favourable terms. 

It is fortunate, then, that companies such ast Car Finance Genie, carry out soft searches of the credit reports of those applying for finance through them. Indeed, they will never perform a hard search of your credit report without first requesting your permission for this. They also offer a wealth of bad credit car finance options – so even if you have had issues in repaying loans in the past, they will still strive to provide you with an attractive car finance deal.

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