You've decided to buy a car and you need a loan. Before you start comparing rates, it pays to know how your credit score can shape the finance you're offered.
What lenders do with your score
When you apply, lenders use your credit file and score as part of their assessment of the risk of lending to you. Alongside your income, expenses and debts, it can influence:
- whether you're approved at all
- how much you can borrow
- the length of the loan
- the interest rate you're offered
Scores are shown on different scales depending on the provider. Equifax and Experian both currently score out of 1,200, and a higher score generally means lower risk. If your score is lower, you may find approval harder, or be offered a higher rate or a shorter term, which can lift your repayments. A higher score doesn't guarantee approval, as each lender has its own criteria.
What you can do before you apply
- Check your credit report and make sure it's accurate. See How do I check my credit score?
- Pay bills and existing debts on time. Late payments can stay on your file.
- Reduce what you owe where you can, such as credit card balances.
- Avoid lots of applications at once. Each application for credit can leave an enquiry on your file.
- Fix any errors with the credit reporting body and the lender.
The government's MoneySmart site has more on credit reports and improving your credit health.
Not sure where you stand?
If you're worried about your credit history, talk to us before you apply. We can discuss your situation and what options might be worth considering.