The great thing about credit scores is that they’re never fixed, and you can take proactive steps to improve them over time. It’s not an exact science, but you might be able to boost your score if you register on the electoral roll, make all your debt payments on time, don’t max out your credit cards, and keep the number of hard searches on your credit report low.
What is a credit score?
Your credit score is a three-digit number used to represent your financial history. There are a few different factors that can affect your score, but it’s mainly impacted by how well you’ve managed your money in the last six years.
There are three credit reference agencies in the UK – TransUnion, Experian, and Equifax – and each use different data and different calculations so it’s possible that you’ll have three different credit scores.
Do I need a good credit score to get car finance?
As a rule of thumb, the higher your credit score, the more likely it is you’ll be approved for car finance. Lenders see good and excellent credit scores as proof that you’ll be a responsible borrower and so may also offer you a low interest rate.
If you’ve missed payments or had any type of debt management solution in the past (like an IVA or bankruptcy), your credit score might be in need of some TLC. But the good news is that a poor credit score doesn’t mean you won’t be able to get a car loan as there are lenders who specialise in bad credit car finance. Keep in mind that you might have to pay a higher rate of interest in return and there may be a limit on the amount you can borrow.
As a young driver, you might not have had any types of credit before. This can mean you have no credit history at all! Unfortunately, this can make you seem like more of a risk to potential lenders as they can’t be sure how you’ll act as a borrower. Don’t panic; at Young Car Driver, we’re all about helping young drivers find finance, even if their credit needs some work.
How to improve your credit score
There are many ways that you can try to improve your credit score over time, even if you’re starting from scratch:
- Manage a new type of credit responsibly
While you should never get into debt for no reason, you could improve your credit score by opening a credit card and managing it well. If you use it once or twice a month – to pay for your petrol or monthly food shop, for example – and then pay the balance in full each month, you can demonstrate that you’re capable of making payments on time. You could make it even easier for yourself by setting up automatic payments.
- Register on the electoral roll
This is one of the quickest and easiest ways to boost your credit score. Register on the electoral roll each time you move house – you can do this online, and it takes a couple of minutes to complete.
- Don’t max out your credit cards
It’s important not to use too much of the credit available to you. If you have a credit card with a £4,000 limit, for example, you’ll ideally not spend more than 30% or £1200 of that limit. If you spend the full £4,000 each month, lenders can start to worry that you’re relying on credit to fund your life. It’s also not good for your credit score if you use credit cards to withdraw cash – it’s another sign that you might be struggling with your finances.