If you’ve previously had a car on finance or have been applying for car loans, you may already know that car finance can be subject to passing a credit check. Whilst there can be companies who offer no credit check finance, typically they tend to offer very high interest rates to secure the deal, and this makes it much more expensive than it needs to be. The guide below looks at why credit checks are important and how to improve your credit score if you’re worried about the impact that finance with have on your report.
Why are credit checks important for car finance?
A credit check is when a lender or finance provider takes a look at your credit report. Car finance lenders will give you the money to buy a car or they buy a car from a dealer, and you make payments back to the lender. Depending on the type of agreement you choose, your agreement will either be unsecured or secure against the vehicle you wish to buy. The lender takes a risk when they hand out money to customers and a credit check can help them to assess the risk of them getting their money back on time and in full. This is because your credit report shows all your history of borrowing and your ability to pay back your debts on time and in full.
Types of credit check for car finance:
Hard search credit check
A hard search credit check is when you give a lender permission to look at your full credit report. A hard search is when a lender can see all the information listed on your credit report, including any recent applications for finance and the outcome of each. Multiple applications with different finance lenders can have a negative impact on your credit score and it can also indicate to lenders that you are desperate for credit.
Soft search credit check.
A soft search credit check is different from a hard search as it has a less harmful impact on your report. Soft searches won’t be recorded on your credit file, and they won’t harm your credit score either. A car finance soft search check makes it much easier to protect your credit score when shopping around for the best rates with different lenders. Soft searches also don’t allow lenders to look at your full report either and only give them partial access to your report.
Can you get finance without the need for a credit check?
It can be possible to get no credit check finance. However, you can be limited to the lenders who would offer this, and you may not get the best deal for you. If you’re worried about a credit check due to a low credit score, it can be a good idea to improve your credit score first to help see easier acceptances. If you’re worried about chances of approval, there are many bad credit specialists who can help people with low credit to buy a car.
Ways to improve your credit score:
Whilst it can be possible to get car finance with no credit check, it can be much more cost effective to increase your score before you start applying for finance.
- Make current payments on time.
- Build a credit history if you don’t already have one.
- Reduce any existing debt that you owe before taking on anymore.
- Keep credit usage low.
- Reduce the number of credit applications you make.