By now, you should be well aware that your credit score is pretty important when it comes to car finance. At least, most expert concur a good score can significantly contribute to a successful loan application.

So, the question is – how well do you know your score?

Did you know you that …

• … you can get credit reports and scores entirely for free?
• … there is no such thing as “your” credit score?
• … checking your score for free won’t hurt your financial rating?

Even if you do know all about these, we may still have some valuable information for you in this article. Read on to find out how you can get all the benefits.

What is a credit score?

A credit score is a single-number rating of your past financial behaviour used to predict the risk of lending to you. Or, to put it differently, the credit score tells a credit institution how likely it is that you will pay back your loan in full, without missed payments, and in time.

The credit score is based on your credit report. The report contains information gathered from various sources, including credit card companies, which reflect on this.

If you’ve missed a payment in the past, this will cost you a few points. If you’ve had to default on a loan, this will impact your rating even more. And a bankruptcy will virtually destroy it.

The more timely and complete your payments, on the other hand, the better your score will be.

Why do credit scores matter?

All lenders base their decisions to some degree on a credit score. So if you want your loan application to be successful, you will need to keep your rating in good shape.

Why do lenders like scores so much?

For one, credit scores are the most objective tool at their disposal. Rather than including just a few pieces of information, they look at the full picture and are based on reputable data.

Finally, credit scores are extremely easy to understand and efficient. At the end of the process, lenders get a single number which may be able to give them at least a rough idea whether this loan is a good or a bad idea.

Why is there no such thing as “your” credit score?

Whenever you read something related to car finance, you’ll see the term “your credit score” mentioned several times. Strictly speaking, this is incorrect. There are as many credit scores as there are rating agencies and lenders.

Firstly, there are so-called guide credit scores. These are issued by credit rating agencies. In the UK, we have many of these, but the only ones that truly matter are Equifax, TransUnion and Experian. They draw from your credit report and from other bits of financial information. Usually, when people talk about credit scores, it is these guide scores that they’re referring to.

And then, you have all the different credit scores by the individual dealerships and credit institutions. What they’ll often do is take the guide score and use it as a reference point. To this, they’ll add more personal information that the rating agencies do not have access to – such as your current income, spending, savings, potential collatarals etc.

Because each lenders collects different data and will set different priorities, each of these scores will be different – sometimes just a little, sometimes significantly so.

Which credit scores can you check?

Lender credit scores are the ones that ultimately matter. This is because rating agencies do not decide on your finance application. Lenders do.

Unfortunately, you will never get to know your lender credit scores. And perhaps that’s for the better, because it would make things extremely complex. Just imagine having to check on hundreds of scores each time you buy a car!

Also, lenders may have other incentives and interests. They may be open towards extending credit even if your score is below average. These options will usually become apparent only in the moment you’re actually applying for finance.

On the other hand, you can check your guide credit scores regularly. This is great news, since almost all lenders make use of them. And as such, they are an excellent first indication of how likely you currently are to get a good credit deal – or any loan at all.

How much will it cost you to check these credit scores?

For many years, you could only check your credit score very rarely. This often meant having to guess how good your chances of success were when applying for a loan. Also, there used to be a lot of confusion around hard and soft checks – the former being the checks performed by a lender after you’ve formally submitted a loan request.

Today, things have significantly improved.

You can check your credit report and your credit score with all rating agencies in the UK as often as you want and entirely for free. There is no longer any need to sign up with any shady services that may eventually cost you a lot of money unless you cancel them again straight away.

Simply log in to the website of the credit rating agency you’re interested in and get all the information you’d like.

So what about those paid subscriptions I saw?

It is true, credit rating agencies still offer paid-for services, even though you can get your credit score for free. How does this make sense?

It makes sense because the above paragraph comes with a caveat: The score you will get is not going to be the most current one. It is usually updated once a month.

Which will usually be good enough. However, you may want to get more up to date information:

• If your credit score is at the cusp between “just good enough” and “no longer good enough”, every small change can make a pretty big difference.
• If you are right in the middle of looking for a car, the fresher the information, the better.
• If your credit score is very low, you can use real-time updates to gradually improve your rating.

Paid services from Experian and other credit rating agencies offer the latest credit information and a variety of tools that can support you in your goals. Whether or not they’re worth it is up for debate. Strictly speaking, you will not need them.

Does it make sense to check my score even if I don’t need car finance now?

This is a question many ask themselves. We are all swamped with information, do you really want to add another set of data points to the equation?

In our opinion you should definitely always know your most current guide credit score with all three major credit rating agencies. Although we have cautioned against over-valuing the credit score and turning it into more than it actually is, it still represents a valuable piece of the puzzle. And truth be told, it does reflect pretty accurately on your financial health, past behaviour, and potential for improvement.

Knowing your credit score means knowing, roughly, where you stand financially. And that’s always a good thing.

What’s more, credit reports are remarkably often not without mistakes. Correcting these as early as possible is vital. And it’s not very hard to do, either.

How often should I check my credit score for free?

Not an easy question to answer because all of our needs and situations are different. Here’s out personal opinion on different suggestions that have been made by experts in the past:

1. Once a year: The idea behind this is that you take a long good look at your finances at the beginning of each year and then do the best you can to improve them. Why worry constantly when your possibilities to make significant changes are limited at best? The thing is: Scores change far more rapidly these days and we also disagree that you are completely helpless. With all the tools at your disposal, once a year simply doesn’t seem enough.
2. Once every three or four months: This is not a bad idea. But three or four months are still pretty long time spans. Plus, you may simply forget about it.
3. Every month: Most free scores get updated once a month. So why not check back on them then? It will only take you one or two minutes to do the rounds – and you’ll have everything you need again.

Daily updates, as offered by paid subscriptions, rarely make sense. This is also because it is not always entirely clear how the score gets calculated. Looking at the score too often can end up confusing you.

Why your credit score isn’t everything.

The guide credit score is very useful. It is easy to calculate, mostly accurate and will give you a valuable overview within the blink of an eye. It is also extremely helpful if you want to gauge whether you’re on the right track.

That said, a credit score isn’t everything. Some of the information not included in it is actually extremely relevant. Just think of your current income, your job security, any assets you have etc.

What’s more, dealers may have ways to compensate for a bad credit score.

At Concept Car Credit, for example, we hardly ever reject an application based on the credit score alone. Quite often, an easy solution for those with a below average rating is to simply reduce your monthly repayments and extend the loan term a little bit. This way, even those with a limited budget and a problematic past can get behind the wheel again.

If you’re interested in bad credit score car finance, talk to us now. We’d love to work with you to make your dream of a great car a reality.

Give us a call at 0800 093 3385. Or use our free online contact form for a first quote.

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