What is a bad credit score for buying a car?
Credit scores are a key factor in making any large purchase that requires a loan to be secured in advance. We often hear a lot of talk about ‘credit scores’ and the perils of having a ‘bad credit score’. Since we specialise in car finance, we’re going to shed some light on the whole topic. Read on as we explain credit scores and discuss what a bad credit score is when buying a car.
What is a credit score?
First things first, a credit score is essentially a number assigned to you based on your likelihood of repaying loans on time. It is calculated based on information in your credit profile. Your credit profile includes a wide range of information about you and your financial history, including your address(es), employment status and recent employment history, including job titles and duration of employment, credit cards, mortgages, car loans, bankruptcies filed, county court judgements issued against you, and any previous credit inquiries.
The term ‘inquires’ is key here because, while successfully taking out loans in the past is relevant, what is perhaps more relevant is any time that you’ve applied for a loan and been rejected. We’ll discuss this further in due course.
What do credit scores mean?
Credit scores can be misleading. Many people assume that a credit score is a universal metric, similar to school grades (we all know that an ‘A’ grade is better than a ‘D’ grade), but this isn’t the case. The score you receive can differ depending on which company has performed your credit check.
The most common companies used by UK lenders to perform credit checks are Experian and Equifax. If Experian were to give you a credit score of 480, there is cause for concern as, according to their scale, 480 is a ‘Very Poor’ rating. However, receiving a score of 480 from Equifax is a great result as, according to their scale, 480 is an ‘Excellent’ rating.
This is why it’s difficult to give a definitive answer to the question ‘what is a bad credit score?’ because it all depends on the company performing the credit check – the score by itself is not particularly helpful, whereas the point on the scale that it sits is the crucial part.
Why credit scores are important
Credit scores are important because of what they suggest about you to potential lenders. Since a credit score reveals your employment status, your outstanding debts, your previous credit inquiries, it gives an accurate impression of your ability to manage money. This is a clear indication of your ability to meet repayments, and a credit score will often be correlated with a potential lender’s confidence in you as a borrower. Previously being rejected for credit is significant since it means that lenders have lacked confidence in you in the past, and this is a red flag to other lenders.
For these reasons, it’s impossible to give a definitive number that signifies a bad credit score, what we can say is that having a low credit score makes it difficult to secure a loan to buy a vehicle. Here at Car Finance Plus, we specialise in helping people in this exact situation. If you have bad credit and require a loan to buy a car, visit our dedicated bad credit car finance page for more information, or get in touch with us directly.