How To Pass A Credit Check For A Car Loan?

If you’re in the market for a new car, it can be hard to pay for your next vehicle in one lump sum. Car loans enable drivers to spread the cost of getting their next car into affordable monthly payments. However, before a lender may consider lending you the money to buy a car, they usually put credit and affordability checks in place first to assess your eligibility for finance. If you have a low credit score, you may be worried about the likelihood of passing a credit check and a low credit score can affect car finance interest rates. We look at the top ways in which can prepare your credit file for a car loan application and increase your ability to get approved.

What Is A Credit Check?

A credit check is performed when you apply for any sort of loan or finance. It can be hard to get car finance with no credit check as lenders want to know how likely you are to pay your future loan back. Based on your credit history and how you’ve handled credit in the past, lenders can determine the likelihood of getting their money back. A low or bad credit score can mean you’ve missed payments in the past, have high levels of debt, made late payments or have a CCJ or default on your credit file. A credit check allows lenders to gain access to your credit report and then determine whether they want to offer you finance or not.

Is Car Finance Guaranteed?

Whilst car finance can’t ever be guaranteed by any lender, usually if you can work on your credit to pass a credit check, you could receive an approval by the right lender. It can be hard for lenders to guarantee finance to everyone and it’s worth noting that each lender will also have their own individual criteria for finance you will need to meet. Not only will you need to consider passing a credit check, but they can also set a minimum income you need to meet too. If you’re unsure, it can be worth checking what the finance lenders eligibility criteria is.

Ways To Increase Your Chances Of Passing A Credit Check:

There are a few factors you can consider and put into action before you apply for finance. Building new financial habits can take time so it can be worth taking a few months to work on your credit before you make a car loan application.

1. Reduce Any Existing Debt You Have First.

Not only does high levels of existing debt affect your credit score negatively but it can also put potential lenders off. Lenders prefer applicants with low levels of debt, and they may assume you can’t handle any more credit as your struggling with the payments you already have. Not only can reducing debt make you more eligible but it can also better your finances and free up some money to put towards your car loan payments.

2. Make Payments On Time.

One of the easiest ways to improve your credit score is to keep on top of your current payments and meet the payment deadlines of all your current accounts. A long history of making payments on time and in full increases your credit score and shows lenders that you can be trusted to pay back your debts. If you’re struggling to meet any payments, you should always speak with your lender to see how they can help instead of missing the payment all together.

3. Apply For What You Can Afford.

When you’re searching for a car loan, it can be tempting to apply with multiple lenders at once to see who will approve you. However, having many credit checks performed by different lenders in a short space of time can be harmful to your credit score. Instead, you could consider using a car finance broker to help find you the best deal. You should only ever apply for what you can afford to pay back as missing payment or taking on too much credit can have a detrimental impact on your ability to borrow in the future.

4. Fix Any Mistakes On Your Credit File.

It can be a good idea to get into the habit of checking your credit score and report regularly. Its recommended you check your report once a month and make sure all the information listed on there is accurate. If your details aren’t up to date, it could see your finance declined as lenders can’t verify who you say you are. If you need to update your credit file or spot something that doesn’t look right, you can contact the credit referencing agency who provided the credit report.

5. Build A Credit History If You Don’t Have One.

It’s a common misconception amongst drivers getting a loan that no credit history is a good thing. However, you may find yourself with a bad credit score due to lack of credit history. When you’ve never borrowed before, lenders can’t predict which type of borrower you will be when you have no evidence. If you’re wanting to build a small credit history, you could start with a mobile phone contract in your name and meet the repayment each and every month by setting up a direct debit.