As with any financial loan, if your credit rating is good, lenders will consider you as a more eligible candidate for a favourable agreement. But is car finance good for your credit rating? We break it down below.
Does car finance impact your credit rating?
If you apply for car finance with My Car Credit, we’ll perform a car finance eligibility checker before advancing your application. This is a soft search of your credit score, meaning that it won’t impact your overall rating. It allows us to see your financial history without leaving any mark on your credit file.
If we decide that you’re a viable candidate for car finance, we’ll advance your application. At this point, our credit check will be hard, meaning that lenders will have access to your details and your rating will take a hit.
Is car finance good for your credit rating?
There are two main ways that car finance can improve your credit rating.
It’s also worth being aware that when you first apply for car finance and undergo a hard credit check, your overall score may dip because you’ve taken on a new loan.
Making timely repayments
The most important factor to a credit score is payment history. As such, if you make all of your monthly repayments on time and in full, this will build up your credit rating over time.
Diversifying your credit mix
A credit mix refers to the type of loans in your credit file. Having a diversified credit mix can improve your credit score, because it indicates that you can handle different types of loan.
Car finance counts as instalment credit, whereas a credit card is revolving credit. Adding car finance to your credit file diversifies it, which lenders look on favourably.
Can car finance damage your credit rating?
Car finance can negatively impact your credit rating if you don’t make your monthly repayment schedule. If you don’t make your instalment in full, or if you miss it entirely, this can negatively impact your credit score.
In these instances, you’ll be given a short period in which you can make the loan up. If you fail to make this payment, your ‘delinquent’ loan will be reported by the lender to major credit bureaus. This will negatively impact your credit rating.
If you miss several payments, lenders will declare your loan in default. The account will be passed over to debt collectors and your car may be repossessed. All of these negatively impact your credit score.
Find out more about car finance and credit ratings
To find out more about the kind of car finance we offer, as well as how it could impact your credit rating, contact My Car Credit on firstname.lastname@example.org.
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Evolution Funding Ltd T/A My Car Credit
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Got a question you can’t find the answer to, or need some advice and guidance around taking out car finance? Our Car Credit Specialists are friendly, experienced, and here to help so get in touch today!