Your credit score is based upon a number of factors from your financial history. The most significant influence on your credit score is your repayment history. If you have been repaying your loans and mortgage on time, for example, and have not had to default on a loan, then this will go a long way to establishing a good credit score. If, on the other hand, something unfortunate happened and forced you to fall behind on your repayments, this will have had a negative impact on your score.
If this happens to you, you may find it harder to secure a loan in the future, although the good news is that bad credit car finance options are available.
Of course, a credit score is much more complicated than that, and something else to take into consideration when you are working on improving your credit score is credit utilisation. Read more to find out about what this is, and why it matters to lenders.
In a nutshell, credit utilisation is a percentage referring to the balance between how much credit an individual is using, versus how much they have available to them. If someone with £5000 of credit spent £500, then their credit utilisation would be 10%. If you have multiple credit cards, then they are often calculated separately, and then together.
It goes without saying that someone who has a credit utilisation rate of 100% is not utilising their credit effectively, but it might be surprising to find out that the credit score belonging to someone who is not utilising their credit at all will also suffer. This is because an insufficient credit history is also cause for a low rating – lenders want to see that you have wise spending habits.
Maintaining a good credit rating is not always easy – it’s about striking the right balance between using your credit, and saving it.
There are a number of different theories about the ‘right’ credit utilisation ratio. Many people theorise that the 30% rule is ideal, while others say 20% is a better number to aim for. What is most important is that you use enough of your credit to build up a detailed credit history – if not, your score will suffer.
If your credit score is currently in the red, then the good news is that there are ways of improving it. Although you can’t rewrite history, you can make a concerted effort to practice good credit utilisation going forward, and make gradual improvements to your score.
What’s more, buying a car with bad credit has never been easier. At Car Finance Giant, we are confident that we will be able to secure bad credit car finance for you, at an affordable and fixed monthly rate. Your credit score is important, but we do not believe that it should prevent you from being guaranteed car finance.
There are plenty of excellent deals and cars for bad credit,so get in touch and find out how simple bad credit car finance can be.