Does Getting a Car Loan Hurt Your Credit?

Car driving in the evening
Buying a car is likely one of the largest purchases you’ll ever have to make. This is why so many people are turning to car finance in order to make the process more manageable and affordable. However, occasionally we come across doubts about whether getting a car loan might hurt your credit.

This article will detail the different ways that getting car finance on your new vehicle might impact your credit – both positively and negatively.

What is a credit score?

Whether you know it or not, you will have a credit score. A credit score is used by lenders to understand your financial history. Furthermore, it allows them to make a judgement on whether you’re a good candidate for future loans. As such, lenders will perform credit checks on you to gauge this. These are known as either hard or soft, depending on whether they impact your score.

Credit reference agencies

Almost all forms of personal finance will impact your credit score. This is typically provided by different companies known as credit referencing agencies. Your number will usually be between 300 and 850. Generally, the higher it is, the better your credit rating – but there are variations between the companies who provide your score rating. In turn, this will impact where you sit on the spectrum of credit. A score of 500 with TransUnion would be below average for them, for example, but good for the provider Equifax.

Payment history and your credit score

Your payment history has a huge impact on your credit score, as does your history of applications. This is why if you make payments on time, this will positively affect your score. Conversely, there are things that might indicate to lenders that you’re a riskier candidate for a loan. For example, if your credit report shows missed payments or defaults, if you’re paying off multiple loans, or if you are near your credit limit. Your credit score might not be the singular factor in whether you’re approved for a loan. However, it will have an impact on your chances.

How does a car loan impact your credit score?

As with most things, getting car finance has advantages and disadvantages for your credit score. It will entirely depend on how you manage your repayments. It’s important to realise that when you first get your car finance loan, it will likely make a slight dent in your credit score. This is because it’s a hard enquiry into your credit history. However, if you are regular and on time with your repayments, this will soon bounce back.

Advantages of car finance on your credit score:

  1. If you make your repayments on time every time, this might have a positive impact on your overall credit score. In essence, it shows lenders that you’re a safe bet for future loans. Be aware, however, that this can take time to show up on your credit score.
  2. It diversifies your credit mix. Your credit mix refers to the types of credit that you have on your roster, which is usually divided between revolving credit (like credit cards) or instalment credit (like car loans). Lenders like a mix of both, so adding car finance onto your profile can make you more appealing for future loan applications. This in turn boosts your credit score.

Disadvantages of car finance on your credit score:

  1. If you are late on your repayments or miss one or more payments, your car loan is considered delinquent. You’ll typically be given a grace period to make the payment back. However, if your lender is required to take further action against you then your credit score will be negatively impacted. For example, if a full billing cycle goes by without you making payment. Consequentially, you might find it harder in the future to find good interest rates or a loan.
  2. If you default on the loan, your credit score will also be impacted. Should you continue to not make payments, the car finance lender may involve debt collectors, who could repossess your vehicle. Each of these elements – late payments, default, transference of the account to debt collectors, or repossession – leave a separate mark on your credit report. Furthermore, they’ll stay there for up to seven years, and they have a significant negative effect on your credit score.

Car finance and credit scores: what to know

Before you begin your hunt for car finance, it’s also important to understand the difference between different kinds of credit checks. This is because finance companies may conduct either a hard search or a soft search on your credit score.

Hard searches:

Some finance companies will conduct a hard search or enquiry on your credit report. This is a process that begins when you first apply for credit, and it requires your consent. However, it won’t happen if you’re only looking for pre-qualification to decide whether to apply.

A hard enquiry will take points off your credit score. This is temporary – usually staying on your report for two years – but will be visible on your credit report. It’s therefore best to limit the number of hard searches taking place on your score. You can do this by checking in advance of application whether you’re likely to be approved.

Soft searches:

Soft searches, by contrast, won’t impact your credit score. As such, they can take place without your knowledge. This kind of check is designed to give a ‘footprint-free’ check on your credit score, without lenders seeing any evidence of it. It aims to give you an idea of whether to enter into the terms of a car loan, without negatively affecting your score in the first instance.

Speak to My Car Credit today to find out more

If you want to find out more about whether or not getting a car loan will hurt your credit, speak to My Car Credit today. Our friendly team can help you get a car finance quote with a soft search that won’t impact your score. From there, you’ll be able to discuss your viability for a loan with one of our advisors. Get in touch today.

Rates from 9.9% APR. Representative APR 12.4%

Evolution Funding Ltd T/A My Car Credit

Return to Your Credit Profile
Return to search

Related articles

What Checks Are Done for Car Finance?

Read More

Try Our Classic Car Financing Calculator

Read More

What is the Average Car Loan Interest Rate?

Read More
My Credit Rating

Excellent

  • You are a home owner
  • You have been on the electoral role for a long period of time
  • You have current credit arrangements and mortgage with no defaults
  • You have no CCJs, credit arrears or missed payments
  • You rarely apply for credit
  • You are employed or self-employed

Good

  • You are on the electoral role
  • You are a home owner or long standing tenant
  • You have a stable employment history
  • You have current credit arrangements with occasional missed payments
  • You have no CCJs

Fair

  • You are or have recently been on the electoral role
  • You may have recently changed address
  • You may have occasional missed payments
  • You may have an old CCJ
  • You may have regularly applied for credit

Poor

  • You may have had frequent changes in address
  • You may not be traceable on the voters roll
  • You may have exceeded credit card limits
  • You may have missed payments on current agreements
  • You may have had a CCJ in the past

Bad

  • You may not be traceable on the voters roll
  • Your credit cards are over their limits
  • You have recent CCJs
  • You may have been refused credit elsewhere
  • You may be in a debt management plan
£

X monthly repayments of
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 12.4%, annual interest rate (fixed) 12.36%, 47 monthly payments of £196.44 followed by 1 payment of £206.44 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,939.12, total amount payable is £9,439.12.

Evolution Funding Limited, trading as My Car Credit, is a credit broker and not a lender.

Please ensure you can afford the repayments for the duration of the loan before entering into a credit agreement.

*Initial application is a soft search. Should you progress, some lenders may perform a hard search on your credit file.
Reviews icon
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Require more help?

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!

Email
or call 01246 458 810

What is a Good Credit Score for Car Financing?

Car bought using good credit

Finding your ideal set of wheels is only half the battle when it comes to securing car finance. In reality, the most crucial part of the process is getting a credit check so lenders can assess how likely you are to repay your loan.

The credit check will reveal your credit score – a rating based on financial history that helps lenders determine who qualifies for a loan, potential risk, interest rates and credit limits. So, what counts as a ‘good’ score?

What is a good credit score?

Having a good credit score increases the likelihood of securing a low-interest loan, meaning you pay less overall. In contrast, falling below the range makes it harder to find funding.

Unfortunately, it isn’t easy to provide a definitive answer or universal credit score as the key credit reference agencies (Call Credit, Equifax, Experian and TransUnion) have independent scoring systems. Plus, most lenders adhere to internal guidelines.

However, a recent Experian report provides some clarity. According to their findings, in September 2019 the average credit score was 715 for a new car loan and 662 for a used car loan. Despite this, their website categorises someone as “good risk” if their score falls between 881-960. The contrast in figures suggests it’s relatively easy to obtain finance even if you fall below the desired limit.

The scores calculated by TransUnion and Equifax are more generous. TransUnion defines “good risk” as between 604-627 while Equifax goes even lower at 420-465.

Demystifying “credit history” and “credit report”

When you’re researching your credit score for car finance, some other terms you may come across are credit history and credit report. So, how do these relate to your credit score?

Firstly, your credit history is what credit reference agencies use to calculate your credit score. It includes credit utilisation, monthly repayments, bill payments and other financial factors.

This is compiled into a credit report, which includes your credit history alongside your debt to income ratio, address history and even whether you’re on the electoral roll.

Your credit report includes your credit score, which is generally what a finance company will use as eligibility criteria for a finance agreement.

Another term you might see is credit rating. This is simply another way of referring to your credit score.

How it affects your car finance application

Now onto the main point of interest – how do credit scores impact car finance deals? The answer is simply down to risk and reward.

Personal contract purchase, hire purchase and personal contract hire are all ways you can borrow money to finance a car. Credit scores from the main credit reference agencies are essentially a barometer of how reliable you are when you borrow money.

If you have a high credit score (good or excellent), it shows that you’re a reliable borrower that’s more likely to keep up with monthly payments. As a responsible borrower, you’re less of a risk for finance companies. This means you’ll likely meet the minimum credit score required to be approved for car finance. In many cases, it may also unlock the best car finance deals with lower interest rates.

On the flipside, a low credit score from a credit reference agency indicates bad credit history. This could impair your chances of being approved for car finance, but it’s not the only factor lenders take into consideration. While many lenders have a minimum credit score, different lenders will have their own criteria for drivers with a poor credit history.

You can increase your chances of success with a larger initial deposit, for example, or by finding the best deal for your circumstances with more favourable repayment terms. Smaller monthly instalments repaid over a longer term may be easier for you to keep up with, for example.

What does My Car Credit define as a “good” credit score?

If you use our free car finance calculator, you can select which credit profile best suits your circumstances. The information button defines each credit profile, with “good” described as:

  • You are on the electoral roll
  • You are a home owner or long standing tenant
  • You have a stable employment history
  • You have current credit arrangements with occasional missed payments
  • You have no CCJs, which stands for county court judgement

Evolution Funding, the broker behind My Car Credit, uses a combination of Experian and Equifax scoring combined with their own clever algorithm to determine which car finance lender is best for your circumstances. Evolution Funding defines a good score as being an ‘Evo Score’ of 650 and above. However, they cater for customers with scores much lower than this so don’t feel disheartened if you have a less than perfect credit score. There is also lots of advice available in our Help & Advice section on how to improve your credit score.

How we can help

Whether you have a higher credit score or a poor credit rating, My Car Credit is dedicated to helping all drivers secure the right car finance in the UK. We’ll guide you through your car finance options, such as personal contract hire, personal contract purchase and hire purchase to find one that’s right for you and your credit score.

If you have a compromised credit history, you may still be eligible for finance. There’s just a little more work to be done before acquiring a loan. That’s where My Car Credit can help. Using your loan application details, our team works hard to find a suitable deal from our panel of lenders. Check our handy online calculator to see if you are eligible for car finance.

Rates from 9.9% APR. Representative APR 12.4%

Evolution Funding Ltd T/A My Car Credit

Return to Application Process
Return to search

Related articles

How to Get Car Finance with Poor Credit

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How to Refinance a PCP Balloon Payment

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I want to buy a car on finance, how much can I borrow?

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My Credit Rating

Excellent

  • You are a home owner
  • You have been on the electoral role for a long period of time
  • You have current credit arrangements and mortgage with no defaults
  • You have no CCJs, credit arrears or missed payments
  • You rarely apply for credit
  • You are employed or self-employed

Good

  • You are on the electoral role
  • You are a home owner or long standing tenant
  • You have a stable employment history
  • You have current credit arrangements with occasional missed payments
  • You have no CCJs

Fair

  • You are or have recently been on the electoral role
  • You may have recently changed address
  • You may have occasional missed payments
  • You may have an old CCJ
  • You may have regularly applied for credit

Poor

  • You may have had frequent changes in address
  • You may not be traceable on the voters roll
  • You may have exceeded credit card limits
  • You may have missed payments on current agreements
  • You may have had a CCJ in the past

Bad

  • You may not be traceable on the voters roll
  • Your credit cards are over their limits
  • You have recent CCJs
  • You may have been refused credit elsewhere
  • You may be in a debt management plan
£

X monthly repayments of
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 12.4%, annual interest rate (fixed) 12.36%, 47 monthly payments of £196.44 followed by 1 payment of £206.44 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,939.12, total amount payable is £9,439.12.

Evolution Funding Limited, trading as My Car Credit, is a credit broker and not a lender.

Please ensure you can afford the repayments for the duration of the loan before entering into a credit agreement.

*Initial application is a soft search. Should you progress, some lenders may perform a hard search on your credit file.
Reviews icon
TrustPilot icon
Trustpilot

Require more help?

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!

Email
or call 01246 458 810

What Are the Different Credit Score Ranges?

Couple leaning against red 4X4 wondering about their credit score range

Your credit score acts as a tool for lenders to know how risky it might be to lend money to you. To understand what your credit score means you need to know which credit score range it falls into.

What are the different credit score ranges?

All credit scores are split into a series of ranges which act as a rough indication of how well you are viewed by finance lenders. Essentially, the higher your credit score is, the more trustworthy you are in the eyes of the lender. This means that you’re likely to be accepted for loans and receive better interest rates. Credit scores run from 0 to 999 and are split into several ranges in between.

Here’s a full breakdown of the Experian credit score range and what it means:

  • Excellent (961-999) – Will be accepted for loans and receive the best interest rates.
  • Good (881-960) – Almost certain to be accepted for loans and receive good interest rates.
  • Fair (721-880) – More than likely to be accepted for loans and receive fair interest rates.
  • Poor (561-720) – Could be accepted for loans and receive higher interest rates.
  • Very Poor (0-560) – Less likely to be accepted for loans and likely to receive high interest rates.

What do these credit score ranges mean?

Understanding your credit score without knowing which range it falls into is like trying to understand a word without its context – the meaning of one relies on the other. What is also important is where your credit score sits in this range. For example, a credit score of 881 sits in the ‘good’ range on most credit score ratings.  This would tend to indicate that you have a good chance of being accepted for loans and receiving competitive interest rates. However, 881 is on the cusp between the ‘good’ and ‘fair’ range. So, whilst you have a ‘good’ credit score, you’re not as financially secure enough to receive the rates that someone in the middle of that range would receive.

Here to help, whatever your credit score

At My Car Credit, we are happy to talk to you whatever your credit score. What’s more, we’ll try our best to get you the right car finance deal for your circumstances, including poor credit car loans.

For more information around improving your credit score, check out our blogs.

Rates from 9.9% APR. Representative APR 12.4%

Evolution Funding Ltd T/A My Car Credit

Return to Your Credit Profile
Return to search

Related articles

What Checks Are Done for Car Finance?

Read More

Try Our Classic Car Financing Calculator

Read More

What is the Average Car Loan Interest Rate?

Read More
My Credit Rating

Excellent

  • You are a home owner
  • You have been on the electoral role for a long period of time
  • You have current credit arrangements and mortgage with no defaults
  • You have no CCJs, credit arrears or missed payments
  • You rarely apply for credit
  • You are employed or self-employed

Good

  • You are on the electoral role
  • You are a home owner or long standing tenant
  • You have a stable employment history
  • You have current credit arrangements with occasional missed payments
  • You have no CCJs

Fair

  • You are or have recently been on the electoral role
  • You may have recently changed address
  • You may have occasional missed payments
  • You may have an old CCJ
  • You may have regularly applied for credit

Poor

  • You may have had frequent changes in address
  • You may not be traceable on the voters roll
  • You may have exceeded credit card limits
  • You may have missed payments on current agreements
  • You may have had a CCJ in the past

Bad

  • You may not be traceable on the voters roll
  • Your credit cards are over their limits
  • You have recent CCJs
  • You may have been refused credit elsewhere
  • You may be in a debt management plan
£

X monthly repayments of
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 12.4%, annual interest rate (fixed) 12.36%, 47 monthly payments of £196.44 followed by 1 payment of £206.44 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,939.12, total amount payable is £9,439.12.

Evolution Funding Limited, trading as My Car Credit, is a credit broker and not a lender.

Please ensure you can afford the repayments for the duration of the loan before entering into a credit agreement.

*Initial application is a soft search. Should you progress, some lenders may perform a hard search on your credit file.
Reviews icon
TrustPilot icon
Trustpilot

Require more help?

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!

Email
or call 01246 458 810

Everyday Hacks to Improve Your Credit Score

Lady uses credit card to improve credit score

Whether you like it or not, your credit score is important. Want a credit card? Check your credit score. Want a mortgage? Check your credit score. Whatever way you look at it, your financial life is dictated by these three numbers. A good credit score is generally seen as being 670 or above. So, don’t sit around wasting time if you’re not there yet. Use our everyday hacks to improve your credit score.

Automate your payments

It’s simple – don’t miss your payments. You can make a standing order with your bank to make sure you’re prompt with payments. Alternatively, set a monthly reminder on your phone if you want to manually make payments.

Have a few lines of credit

When you have multiple open lines of credit – and they are being used correctly – credit agencies begin to take notice. It’s a sign of trustworthiness and organisation. Two or three is the sweet spot.

Use all your cards

Some people think the lower their credit card utilisation is, the better – they’re wrong. Using your credit card is a vital part of proving your responsibility to credit agencies. Don’t get yourself into debt making big payments, just make regular smaller payments – the kind of things you might normally make in cash or whack on your contactless debit card.

Balance out your cards

Make sure that your credit cards are levelled-off at all times. If you have one card that is looking a bit low, top it off with another one. Managing your credits by switching balance from one card to another shows financial maturity.

Pay off, don’t close off

Around 15% of your credit score is decided by the length of your credit history. If you close your old accounts you can shorten the time and affect your credit score. So, pay them off, don’t close them off.

Take out a credit builder card

If you haven’t had the opportunity to build up a credit score yet, or you’ve got a less than perfect score, take out a credit builder card. These are real tests: they have low credits and high interest rates, so manage this right and you’re onto a winner.

Piggyback on someone’s credit score

Adding yourself onto a credit account of someone with a good rating (with their permission!) is a great way of improving your credit score. It proves you are trustworthy with money. This is usually best to do with a partner or family member.

Up your credit limits

Don’t panic, we know this sounds crazy. This is actually a very effective way of lowering your credit utilisation and improving your credit score. Here’s how it works: you use £300 each month on your credit card but have a limit of £600, your credit utilisation is 50%. If you increase your credit limit to £900, your credit utilisation drops to 30%. Just don’t be tempted to splash out.

The three numbers that make up your credit score have a massive effect on your life, so it pays to improve it as much as possible. We’re sure that if you follow our credit score hacks, you’ll be on track to more approved financial applications, lower interest rates and a richer financial life.

In the meantime, rest assured that My Car Credit is on hand to help you with poor credit car finance – a successful application and maintained payments can even improve your credit score over time!

Rates from 9.9% APR. Representative APR 12.4%

Evolution Funding Ltd T/A My Car Credit

Return to Your Credit Profile
Return to search

Related articles

What Checks Are Done for Car Finance?

Read More

Try Our Classic Car Financing Calculator

Read More

What is the Average Car Loan Interest Rate?

Read More
My Credit Rating

Excellent

  • You are a home owner
  • You have been on the electoral role for a long period of time
  • You have current credit arrangements and mortgage with no defaults
  • You have no CCJs, credit arrears or missed payments
  • You rarely apply for credit
  • You are employed or self-employed

Good

  • You are on the electoral role
  • You are a home owner or long standing tenant
  • You have a stable employment history
  • You have current credit arrangements with occasional missed payments
  • You have no CCJs

Fair

  • You are or have recently been on the electoral role
  • You may have recently changed address
  • You may have occasional missed payments
  • You may have an old CCJ
  • You may have regularly applied for credit

Poor

  • You may have had frequent changes in address
  • You may not be traceable on the voters roll
  • You may have exceeded credit card limits
  • You may have missed payments on current agreements
  • You may have had a CCJ in the past

Bad

  • You may not be traceable on the voters roll
  • Your credit cards are over their limits
  • You have recent CCJs
  • You may have been refused credit elsewhere
  • You may be in a debt management plan
£

X monthly repayments of
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 12.4%, annual interest rate (fixed) 12.36%, 47 monthly payments of £196.44 followed by 1 payment of £206.44 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,939.12, total amount payable is £9,439.12.

Evolution Funding Limited, trading as My Car Credit, is a credit broker and not a lender.

Please ensure you can afford the repayments for the duration of the loan before entering into a credit agreement.

*Initial application is a soft search. Should you progress, some lenders may perform a hard search on your credit file.
Reviews icon
TrustPilot icon

Require more help?

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!

Email
or call 01246 458 810