If you are thinking about buying a car then unless you have cash in the bank, you will need to be approved and secure a finance agreement before you can get behind the wheel of your new car.
If you are buying from a dealership, then they will help you with securing finance. They will assist in completing a vehicle finance application, which will then be sent to all the banks. The banks will then find out your credit score, which is a major factor in the decision making.
Your credit score is away for the bank to see if you are trustworthy and responsible. You will then need to have a good credit score if you want to be approved for vehicle finance.
Here is how you can improve your credit score, so you can get that dream car.
Pay Your Bills On Time
If you want the bank to lend you a large sum of money, then you will need to show that you can pay your monthly bills. You need to be disciplined and make sure you don’t fall behind on any bills or other loan agreements. The banks will know if, over the past 2 years, you have fallen behind on any bills.
Limit Your Credit Spending
You might have a credit card or two or store credit cards and these cards will have a limit. It can be tempting to spend up to that limit, but this will only hurt your credit score. If you are already pushing things to the limit then the bank might think you will not be able to pay a new loan over a number of years.
A good rule is to not use more than half the limit on your cards. You should try and make regular monthly payments to keep the balance below half.
If you start paying a bit more on these accounts each month, then your credit score will improve.
Avoid Applying for Multiple Loans
Banks will see how often you apply for credit and past applications. Generally, when people are in financial trouble they apply to multiple places for loans. When a bank sees this they may think you are in financial trouble.
Don’t Use too Little Credit
So, we just said not to use too much credit, but you also shouldn’t use too little. A bank wants to see that you can pay back loans and manage credit. If you have no credit or loans to pay then the bank won’t be able to determine if you are good or bad with money and will assume the worst.
If you have never had credit before and you apply for car finance then you will most likely be declined. You need to have a credit history first. You can get a credit card and pay off the balance each month. Or buy an item like a laptop and pay it off each month. This will build a credit history, but you will need to do this for at least 6 months before you want to buy a car.
Watch Out for Skeletons in the Closet
If in the past, you have had any court judgements, defaults or bankruptcy then they may come back to haunt you. These things stay on your credit profile for up to 5 years and will almost always result in your vehicle application being declined.
Getting vehicle finance can be tricky, as the bank will need to make sure you can pay what you borrow. But taking time to improve your credit score can help you to get behind the wheel of your dream vehicle.