Car finance can help boost your credit score and build a positive payment history
A recent survey suggests that people in Great Britain are the least likely in Europe to think about their credit score, according to experts.
A recent survey has revealed that Britons are the least likely in Europe to consider their credit score, with nearly half of adults (46%) oblivious to their current financial rating.
A good credit score can unlock a host of benefits, including better borrowing terms, lower interest rates, and increased chances of successful loan applications. Latest figures suggest that approximately one in five Brits have a poor credit rating.
However, ther positive side to this is that there are several strategies to enhance your score, one of which is taking out car finance. Jonathan Such, head of sales at vehicle finance firm First Response Finance, sheds light on how it can bolster your credit score, establish credit history, create a positive payment footprint and more.
It's crucial to note that while this is indeed a high-value credit purchase, there are other methods to improve your credit score such as registering on the electoral roll - a step many may have already taken to participate in last week's general election, reports the Daily Record.
Establishing credit history
One of the key advantages of opting for car finance is its potential to help build a longer credit history. This holds particularly true for drivers who are new to credit or have a limited credit history.
Jonathan Such stated: "Buying a car is often one of the first significant investments you make, particularly if you've passed your test at a young age and are looking to hit the road as soon as you get hold of your driving licence."
He added: "There's a chance that, at this stage of your life, you may have limited credit history - or no history at all. In this scenario, a car loan can kickstart your credit profile, making it easier for you in the future to obtain other forms of credit."
He further explained: "In fact, length of credit history is an important factor in the eyes of a lender, and it can actually make up 15% to 20% of your credit score."
Building a positive payment history
Car finance not only helps younger drivers climb the credit ladder but also allows them to build a positive payment history.
Adhering to monthly instalments and making timely payments can significantly improve your credit rating, demonstrating your ability to manage and keep up with bills. This is a crucial factor that future lenders will consider when deciding whether to grant you a loan.
Ultimately, finance providers are more likely to lend money if they see a track record of regular payments.
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Demonstrating financial responsibility
Maintaining timely monthly instalments and establishing a positive payment history through car finance can demonstrate financial responsibility and creditworthiness.
Jonathan stated: "Successfully managing a car loan will show that you're a reliable borrower. It indicates that you're able to meet deadlines and respect agreement terms, meaning you aren't a risk to credit lenders."
He added: "Reliability and responsibility are things that finance providers take into serious consideration when evaluating an application. A good track record of timely payments can make the difference between a successful and rejected loan request.
"Demonstrating trustworthiness by fulfilling your car finance payments can be extremely beneficial if you plan to apply for other types of credit, such as personal loans or mortgages."
Show a diverse credit mix
A 'credit mix' refers to different types of loans you've taken out.
In essence, there are two forms of credit - instalment and revolving. The former consists of loans that have fixed monthly repayments and a set end date, such as car finance.
The latter, on the other hand, is a type of loan that has a minimum monthly repayment figure but no specific end date or balance (such as credit cards).
Credit scoring models tend to favour borrowers with a diverse credit mix, as it proves that they're able to manage different types of loans and credits.
Securing car finance and incorporating instalment credit into your file could enhance your credit rating, thereby improving your 'reputation' amongst potential lenders.
