As car finance grows in popularity, car buyers need to ensure they’re credit ready
The arrival of the 17 plate this week could prompt motorists to think about their next set of wheels. But with finance now a fundamental part of the car buying process, and with 3,000 new cars a day purchased on finance deals in 2016*, credit information provider Equifax is reminding motorists about the role of their credit information in car purchases.
The March plate change will see a spike in consumers looking for car finance as they look to upgrade their vehicle for something newer. But before people go shopping, they should look at their credit status because finance companies will want to know how likely they are to repay the loan.
“Lenders use an individual’s credit report to prove the identity of an applicant, as well as to see how consistently they have repaid loans in the past” explained Lisa Hardstaff, credit information expert at Equifax. “Any missed payments or defaults might mean that an individual is less likely to repay a loan and this could affect their ability to get the best car finance deal.
“Anyone looking to buy a car on finance should make sure that all their payments are up to date and they should close any old accounts to ensure they don’t seem over-reliant on credit.”
By looking at their credit report in advance, car buyers can also take steps to improve their credit score.
“Once you have worked out what the total monthly payments are (including fees and interest) it is always worth having a look at your credit report to make sure you are credit ready before you make that credit application,” added Lisa Hardstaff. “By checking your credit report you can see if there are any recent issues that may be viewed less positively by lenders, and it also gives you the chance to update any missing information.
“If you are refused credit for a car, then check your credit report to address any outstanding issues. Make sure you are registered on the electoral roll, so that lenders can verify your identity, and pay off outstanding debts where possible. If you have missed payments, defaults or even County Court Judgments (CCJs), it may take a while for your credit history to improve.
“Our credit report checklist can help car buyers avoid disappointment by getting them credit ready to enjoy the best deals on car finance at any time of year.”
The Equifax Credit Information Check List
- Check your credit report
Apply for a copy of your credit report as many as six months before you start making new applications for credit. This will allow you to review your report to ensure it is accurate and up-to-date.
- Do you have a credit history?
Lenders typically look at your credit history when making a decision on your application. If you already have a history of meeting your financial obligations, including repaying credit cards, loans or credit accounts and service contracts, lenders can use this to decide whether to approve your application. If you don’t have much credit history you could consider taking out small amounts of credit in order to demonstrate your ability to responsibly manage credit and repay debts. If you decide to do this, ensure the full balance is paid off each month to avoid being charged interest.
- Are you registered?
The electoral roll is used by many companies for identity verification purposes in order to combat identity fraud. It is important, therefore, that you are registered on the electoral roll at your current address.
- Correcting errors
If there’s a mistake on your credit report in relation to a specific account, contact the lender or service company it relates to and ask for the error to be corrected. If you’re unsure which company to contact, you can contact the credit reference agency concerned and they can raise this with the lender or Service Company on your behalf. In most cases the correction will appear on your credit report within 28 days.
- The right to explain
You can also add a ‘notice of correction’ to explain any items on your report, such as missed payments, which may have occurred due to life changes, such as losing your job. The ‘notice of correction’ will only be recorded with the Credit Reference Agency (CRA) you provide it to and will stay on your credit file indefinitely. The lender will see it when considering an application.
- Individual Voluntary Arrangement (IVA) and County Court Judgment
If you are declared bankrupt or take out an IVA, it could impact your ability to gain access to credit during that period. If you’ve had a CCJ and it is now settled make sure the settlement is recorded on your credit file. If not, contact the court to get confirmation details and inform the credit reference agencies. These records will stay on your credit report for six years.
- Managing existing credit agreements
Try to pay more than just the monthly minimum on credit agreements and, where possible, keep credit balances low. Settle debts, such as personal loans or hire purchase agreements in full. This demonstrates your ability to repay debts. Missed payments may make lenders think you’re already struggling with debt.
- Have you got cards you’re not using?
Lenders will often look at the total amount of unutilised credit available to an individual and consider this when making a lending decision.
- Don’t apply for credit too regularly
Avoid multiple applications in a short space of time. Each credit application logs a search on your credit file. Too many could appear as if you already have too many commitments.
The Equifax Credit Report is accessible for 30 days free simply by logging onto https://my.equifax.co.uk/. If customers do not cancel before the end of the 30-day free trial, the service will continue at £14.95 per month, giving them unlimited online access to their credit information and weekly alerts on any changes to their credit file. It also includes an online dispute facility to help them correct any errors on their credit file simply and quickly.
*Finance and Leasing Association - http://www.fla.org.uk/index.php/consumer-car-finance-volumes-up-8-in-2016/
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