How to improve your credit score so you can get a good deal on your new car
28 March 2023
By Joy Pearson
I think we can all agree that buying a new car or vehicle is exciting, that’s never going to change. It can, however, be a stressful experience if you are either unsure about your credit score or if you have been declined in the past. A low credit score can make it difficult to get approved for car finance or result in higher interest rates and less favorable terms. That doesn’t mean it’s the end. Improving your credit score is possible, so let’s talk about how…
Before changing anything, the first step you need to take is to check your credit report, as you might be surprised and not need to change anything in the first place. You can get a free copy of your credit report from each of the 3 major credit bureaus, (Equifax, Experian and Transunion), once a year. Review your report carefully to ensure that all the information is accurate and up-to-date. If you find any errors, or if you find something your not sure is accurate, make sure to dispute them immediately.
Payment history is the most critical factor in determining your credit score, accounting 35% of your credit score. Late payments, missed payments and defaults can significantly damage your credit score. Make sure to pay all your bills on time, including credit card bills, utility bills and rent/mortgage repayments. Setting up automatic payments can help you avoid missing payments.
Something people don’t always check is their credit utilization, which is the percentage of your available credit that you’re currently using. A high credit utilization ratio can negatively impact your credit score. Experts recommend keeping your credit utilization ratio below 30%, for example, if you have a credit card with a £10,000 limit, try to keep your balance below £3000.
Of course, one we all know, high levels of debt can also hurt your credit score. The amount of debt you owe accounts for 30% of your overall score. Paying down your debt can improve your credit score significantly. Start off paying off high-interest credit card debt first, then focus on paying off other debts, such as personal loans and auto loans.
Every time you apply for credit, such as a credit car or car loan, it results in a hard inquiry on your credit report, which can temporarily lower your credit score. Try to limit the number of credit applications you submit. Instead, research your options and choose the best one before applying.
Now improving your credit score is not a quick fix, but it’s worth the effort. A higher credit score can result in better loan terms, lower interest rates and more manageable monthly payments. By following the tips I have outlined above, you can improve your credit score and get a good deal on your new car.