What credit score is required for car finance?
Find out if your current credit score is high enough to get approved for car finance
It’s a question we find many of our customers asking; what credit score is needed to be approved for car finance? If you’re left wondering whether your current credit score is good enough for car finance, then fear not, we are here to help!
At Octane Finance, we are leaders in providing cutting-edge market-leading car finance. From years of experience, our finance experts are best placed to accelerate your car finance requests. In this dedicated article, we explain more about the credit score process, what types of car finance are available to you, and our top tips to help you get approved for car finance.
Why is a credit score important for car finance?
When applying for car finance, a lender will want to know your credit score. Why? Because this helps them understand your current financial circumstances so they can progress with your request. A credit score is attributed to every person in the UK based on a number of contributing factors - we’ve explained more about this, below.
How is a credit score calculated?
A credit score usually ranges from 300 to 850 depending on the credit score model provided. Also known as a FICO score, it’s based on a three-digit number scale adopted by many financial institutions (VantageScore is also another model offered).
Using the FICO scale, lenders can determine how likely or unlikely their decision is to approve a loan application. It’s worth knowing that FICO is just one brand of credit score, so the scale may change slightly between reference agencies.
There are three main credit reference agencies in the UK used and recommended by lenders, they are:
- Equifax
- Experian
- TransUnion
You can find out your credit score for free via each company's website (you may need to sign up for an account in the first instance). Personal to each person, your credit score is determined using a number of factors which together create an overall total score. These contributing factors include:
- Your credit history
- Your current financial situation
- Payment history
- Banking activity (including number of open accounts)
- Credit card use
- Loan applications
- Any debt owed
- Recent credit applications
It’s important to understand that your credit score will vary. As such, your financial behaviour will influence your credit score which means it can go up and down. This is why when applying for car finance, you need to know exactly what your score is at the time of application.
Your credit score will provide a better understanding to the lender if you are able to repay the borrowed amount, and at the agreed junctures (this is likely to be on a monthly basis, for example). Ultimately, your credit score represents your credit worthiness to a lender.
Although credit and FICO score ranges can vary, the rule of thumb is that the lower the number, the less likely you are to be approved for a loan, whereas the higher the number, the more likely you are to be approved by a lender.
Equifax, Experian and TransUnion each adopt their own range of numbers which vary slightly. However, the average credit score scale is considered to be:
- POOR: 300-579
- FAIR: 580-669
- GOOD: 670-739
- VERY GOOD: 740-799
- EXCELLENT: 800-850
If your current credit score is below ‘good’, you could be at risk of not being approved for car finance. To reduce this risk, it is absolutely possible to improve your credit score; this is by no means a quick fix, but can certainly make a difference. There is no definite time scale as to how long it will take to improve your credit score - this is down to an individual’s circumstance and credit score starting point.
Take a look at our blog ‘How to improve your credit score’ to get started. Within the article, we explain in detail how to improve your credit score so that you’ll have a better chance of being approved for car finance in the hopefully not-too-distant future.
What is considered a good credit score?
As explained above, the three major credit reference agencies in the UK have their own individual scoring systems, so there is not any ‘one’ definitive score to share with you as the one to aspire to. That being said, the credit score scale is divided into bands, so it’s best to make sure you fall in the ‘good’, ‘very good’ or ‘excellent’ categories.
Of course the higher the number the better. Based on the average credit score scale displayed above, you want your own personal credit score to be at least 670 or above. We advise you to check with one of the three recommended credit score agencies who will rate your credit score against their own credit model, as shared below.
How to check your credit score
Now that we’ve given you a better idea of how your credit score is calculated and what number you’re aiming for, the next step is to access your current credit score. By law, you are eligible to request your credit score rating for free. To do so, click on the link of one of the three recommended credit reference agencies in the UK:
Even though each of these companies will initially offer access to your credit score rating for free, do bear in mind that they will take the opportunity to upsell other credit-based reports.
What is a good credit score for car finance?
The important fact to remember here is that the higher your credit score, the better. Depending on the scale associated with the credit reference agency you’re sourcing your score from, you are more likely to be accepted for car finance if you fall into the ‘good’ or above categories.
‘Good’, ‘very good’ and ‘excellent’ credit scores means you are regarded as a ‘good risk’ by lenders. This means the lender considers you a reliable investment and will be more willing to offer a loan. Based on your annual earnings, monthly outgoings, and factoring in how much you wish to borrow, if your credit score is high, then you’ll have a better chance of being offered a low interest loan , so you can pay less overall.
Being approved for a loan is still possible if your credit score is classed as ‘fair’. It just means that the lender is less likely to offer you a loan at a low interest rate, meaning that you may end up paying more overall for the same amount of money you wish to borrow.
If you fall into the ‘poor’ credit category, all is not lost. There are some lenders that specialise in offering what’s called ‘bad credit’ - find out more over on our Bad Credit page. Get in touch with us here at Octane Finance to speak with one of our experts to see how likely you’ll be approved for car finance with bad credit.
Types of car finance
Choosing the right car finance for you can be confusing. To make things simpler, here at Octane Finance, we offer three types of car finance to consumers. These are…
Personal Contract Purchase (PCP) finance
Personal Contract Purchase is a form of finance that offers the most flexibility within the product and with the right credit score, can even offer the lowest monthly repayments. Consider a PCP option as a loan from the lender that will eventually enable you to purchase the vehicle.
Hire Purchase (HP) finance
Hire Purchase proves to be a popular form of car finance, whereby the loan from a lender will allow you to pay for a vehicle over an agreed period of time. The difference between HP and PCP, is that rather than automatically owning the vehicle at the end of the contract, you are simply ‘hiring’ the car during the set term.
Lease Purchase (LP) finance
Lease Purchase is the most similar option to an HP finance deal. The main difference being that when you enter into a LP agreement, it is subject to what’s called a ‘balloon payment’ at the end of the term. This means you will be required to pay a final lump sum if you wish to own the car. As such, a balloon payment may also be called a ‘optional final payment’ by the lender.
Navigate your way through the world of car finance by reading our blog ‘The best ways to finance a car’ to discover more about the different car finance options. Within the article, we’ve also highlighted the pros and cons of each finance option so you can make a more educated decision before deciding on the best option for you.
Get approved for car finance with Octane
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