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Car finance can be simple; whichever finance type you choose, an essential part of car leasing is the credit search. A credit search can give the lender details of your credit score, showing them how financially secure you are and how good you are at repaying loans and past finance.

What is a credit score?

Your credit score comprises a 3-digit number between 0 and 850. When you apply for any finance or loan, whether a credit card, mortgage, personal loan or car finance, the lender checks your credit score to help them decide if they will give you the loan.

If you are on top of all your payments and have no accounts in arrears, your credit score is strong, so you’ll be more likely to be approved. If you have a good credit score, you’ll likely be approved by a Prime lender such as FinanceforYou or Close Brothers.

If you have a bad credit score – if you have consistently missed payments, gone into arrears, have CCJs or have had judgements towards you- your credit score will show this. Getting a Prime lender to offer you finance will be much more complicated. Instead, you can choose several Near Prime or Sub Prime lenders, such as Marsh Finance or other companies.

How does my credit score affect my car finance?

As mentioned above, depending on your score, you can choose several lenders. Bad credit does not mean you will never be accepted for car finance; it just means you have a smaller choice of lenders. There’s no exact credit score guaranteeing you a particular loan; they are all bespoke agreements to suit your financial position.

If you have good credit (credit score between 670 to 800+)

  • You’re more likely to be approved as lenders will be able to see you’re likely to stick to the financial agreement.
  • You’ll have more options for cars and lease types as you can access better deals on the vehicle you like.
  • Lower interest rates
  • Deposit size can be your choice, benefiting from lower or even no deposits as lenders trust you to upkeep their payments.

If you have bad credit (credit score below 670)

  • If your credit report shows missed payments or CCJs, it makes you a more significant risk to lend to.
  • You may have higher interest rates than someone with a higher credit score, but it will still be cheaper than buying the car outright.
  • More extensive deposits or reduced choice on deposit size, meaning you won’t have as much flexibility. However, if you can afford a larger deposit, the lender may feel more inclined to accept you.

How do I improve my score?

Every time you take any loan, it’s added to your credit score. Reviewing your credit reports through websites like TransUnion can help you understand what’s affecting them. If you spot any errors on your file, report them to credit reference agencies, as negative information on your file will stay there for up to 6 years.

Limiting your requests on ‘Hard Searches’ also helps. A Hard Search is when a lender requests your credit file. That request is then added to your credit score, decreasing it by a small percentage every time. Asking ‘Soft Searches’ can help this. Another easy way to improve your score is enrolling on the electoral roll for your local area; it allows lenders to verify who you are and makes you appear more stable.

Check for fraudulent activity, ensure all activity on your score is your own and report anything that looks out of place.

Be aware that lenders tend to feel more comfortable offering loans to those who have lived at several addresses, regardless of mortgage or rent. It shows you are more stable and secure as you can afford to live independently.

Of course, pay your bills on time. Forgetting to pay will damage your score, so if you can afford to, setting up a direct debit can make it easier to keep on top of multiple bills.

Should I still apply to lease a car with bad credit?

In short, Yes.

Here at LMO, we deal with many people from all financial and credit backgrounds. Each lender has different criteria; we work in the Near and Subprime market. So, if your credit score is a little lower than you’d wish, we will help.

You can check your credit score online through websites like Experian and Equifax.