5 Tips to Improve Your Credit Score Before Applying for Car Finance

When you're in the market for a new set of wheels, securing favourable car finance can make a significant difference to your monthly budget. One of the key factors that lenders consider when determining your interest rate and loan terms is your credit score. At Carlingo, we understand the importance of a healthy credit score in securing the best possible finance options. That's why we've put together this comprehensive guide to help you improve your credit score before applying for car finance.

1. Check Your Credit Report for Errors

The first step in improving your credit score is to know exactly where you stand. Request a copy of your credit report from the three main credit reference agencies in the UK: Experian, Equifax, and TransUnion. You're entitled to a free statutory credit report from each agency once a year.

Once you have your reports, carefully review them for any errors or discrepancies. Look out for:

• Incorrect personal information (name, address, etc.)
• Accounts you don't recognise
• Late payments that you believe were made on time
• Debts that have been paid off but are still showing as outstanding
• If you spot any errors, contact the relevant credit reference agency immediately to dispute the information. They are required to investigate and correct any inaccuracies within 28 days. Removing negative errors from your credit report can give your score a quick boost.

2. Pay Your Bills on Time, Every Time

Payment history is the single most important factor in calculating your credit score, accounting for about 35% of the total. Consistently paying your bills on time is crucial for maintaining and improving your credit score.

To ensure you never miss a payment:

• Set up direct debits for regular bills like utilities, phone contracts, and existing credit commitments
• Create reminders on your phone or calendar for due dates
• Consider setting aside a specific day each month to review and pay any outstanding bills
• If you're struggling to keep up with payments, don't ignore the problem. Contact your creditors as soon as possible to discuss your options. Many will be willing to work out a payment plan or temporary arrangement to help you get back on track.

3. Reduce Your Credit Utilisation Ratio

Your credit utilisation ratio is the amount of credit you're using compared to your credit limits. It's the second most important factor in determining your credit score, accounting for about 30% of the calculation.

Ideally, you should aim to keep your credit utilisation below 30% of your available credit. For example, if you have a credit card with a £1,000 limit, try to keep the balance below £300.

To improve your credit utilisation ratio:

• Pay down existing credit card balances
• Consider asking for a credit limit increase (but avoid using the extra credit)
• Spread your spending across multiple cards rather than maxing out one
• Keep old credit accounts open, even if you're not using them, to maintain a higher overall credit limit
• Remember, it's not just about individual cards – lenders also look at your overall credit utilisation across all your accounts.

4. Limit New Credit Applications

Every time you apply for credit, whether it's a new credit card, loan, or even a mobile phone contract, a hard search is recorded on your credit file. Too many hard searches in a short period can negatively impact your credit score, as it may suggest to lenders that you're desperately seeking credit.

To minimise the impact of credit applications:

• Space out your credit applications, ideally waiting at least six months between each one
• Use eligibility checkers or soft search tools before applying to get an idea of your chances of approval without affecting your credit score
• If you're rate shopping for a specific type of credit (like car finance), try to do all your applications within a short time frame (14-45 days, depending on the scoring model) as these may be treated as a single inquiry

5. Build Your Credit History

If you have a limited credit history, it can be challenging to secure favourable finance terms. Lenders like to see a track record of responsible credit management. Here are some ways to build your credit history:

• Get on the electoral roll: This simple step can boost your credit score and make you more attractive to lenders
• Consider a credit-builder credit card: These cards typically have low limits and high interest rates, but when used responsibly, they can help improve your credit score
• Become an authorised user: If a family member or partner has a good credit history, becoming an authorised user on their credit card can help build your own credit (but make sure they maintain good credit habits)
• Use a mobile phone contract: A contract phone can help build your credit history as it's a form of credit agreement
  Remember, building a good credit history takes time. Be patient and consistent in your efforts.

Bonus Tip: Consider Professional Help

If you're feeling overwhelmed by the process of improving your credit score, consider seeking professional help. Free debt advice charities like StepChange or Citizens Advice can guide managing your debts and improving your credit score.

At Carlingo, we understand that everyone's financial situation is unique. That's why we offer a range of car finance options to suit different credit profiles. By following these tips and improving your credit score, you'll be in a stronger position to secure the best possible car finance terms when you're ready to purchase your next vehicle.

Remember, improving your credit score is a journey, not a destination. By adopting good financial habits and consistently applying these tips, you'll not only improve your chances of securing favourable car finance but also set yourself up for long-term financial success.

Visit us in Harrogate to explore our wide range of quality used cars and discuss your car finance options. Our friendly team is here to help you find the perfect vehicle to suit your needs and budget, regardless of your credit situation.