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Car finance ›
Does financing a car build your credit score?
Updated: Wednesday, 5 April 2023
Buying a new car is exciting, but paying for one upfront isn’t always possible. That’s why lots of people opt for car finance.
Besides the happiness of having a new set of wheels, you might wonder if financing a car affects your credit score.
In this guide, we’ll discuss how financing a car can build your credit score and how it could also affect it. We’ll also explore some other factors you might want to consider.
Can you build your credit score with car finance?
Financing a car can help you to improve your credit score, but there’s no guarantee.
The impact that car finance has on your credit report depends on several factors:
- Whether you pay on time or if you’ve missed any payments
- How much you have borrowed
- Other lines of credit you have.
When you finance a car, most of the time it will appear on your credit report. If you make your car finance payments in full and on time, you may see a boost to your credit score.
How does car finance build your credit score?
Although car finance can help to improve your credit score, you might notice a slight dip in your credit score when you first take out an agreement. This is usually for two key reasons:
- You are agreeing to borrow a large amount of money, or in other words, you are opening a new line of credit
- The lender has made a hard credit check, which can affect your credit score.
Making your car finance repayments on time shows that you are a reliable borrower, which can increase your chances of getting approved for car finance and other types of credit in the future.
Repaying your car finance is not the only thing you can do to build your credit score. You will also need to be repaying all of your other debts on time. If you have a range of different lines of credit, and have made your payments in full and on time, it shows that you can manage credit responsibly.
Lastly, low credit utilisation can help your credit report. You can keep your utilisation low by paying off your car finance balance and not using too much credit on other accounts. ClearScore recommend keeping your credit utilisation below 30% to avoid any negative impact on your score.
How quickly will car finance raise my credit rating?
It’s important to remember that taking out a car finance agreement won’t improve your credit score overnight. Your credit score might increase at a steady rate over a long period of time, as long as you make your monthly repayments.
However, if you miss a payment or fall into arrears, it might negatively impact your credit.
Can car finance hurt your credit score?
There are several reasons that car finance could result in a lower credit score.
When you first apply for car finance, some lenders use a hard credit check. A hard check affects your credit score, and if you have made more than one application for credit in the past couple of weeks, these can quickly add up. Too many of these checks in a short amount of time can cause your credit score to drop as it appears to lenders that you are desperate for credit.
It’s important to know that some lenders such as Moneybarn use a soft credit check at the point of application. This does not affect your credit score but will tell you whether or not the lender can offer you car finance.
We only use a hard credit check once you’ve found the car you’d like, and decide to enter into an agreement with us.
Late or missed payments are another reason why your score might drop. If you miss a payment or fall into arrears with your car finance, the lender usually reports this to credit reference agencies. This means it will show on your credit report and will affect your score.
Settling your car finance early usually won’t affect your credit score. But if your agreement is terminated or you default on your car finance, then this will appear on your credit report and will affect your credit score.
If you want to learn more about credit, check out our related guides:
FAQs about car finance and credit scores
What credit score is needed to take out car finance?
There is no set credit score to get car finance. Being approved depends on lots of factors, such as credit score and affordability. Generally, people with a higher credit score are seen as more reliable to lend to, but lenders usually take into account a range of factors when reviewing a car finance application.
Does having a car on finance affect my credit score?
Car finance can impact your credit score – either positively or negatively, depending on how you use it. If you keep up with your monthly payments over your agreed loan term, this can slowly boost your credit score. Alternatively, missing payments or defaulting can damage your credit score.
Buying a new car is exciting, but paying for one upfront isn’t always possible. That’s why lots of people opt for car finance.
Besides the happiness of having a new set of wheels, you might wonder if financing a car affects your credit score.
In this guide, we’ll discuss how financing a car can build your credit score and how it could also affect it. We’ll also explore some other factors you might want to consider.
Can you build your credit score with car finance?
Financing a car can help you to improve your credit score, but there’s no guarantee.
The impact that car finance has on your credit report depends on several factors:
- Whether you pay on time or if you’ve missed any payments
- How much you have borrowed
- Other lines of credit you have.
When you finance a car, most of the time it will appear on your credit report. If you make your car finance payments in full and on time, you may see a boost to your credit score.
How does car finance build your credit score?
Although car finance can help to improve your credit score, you might notice a slight dip in your credit score when you first take out an agreement. This is usually for two key reasons:
- You are agreeing to borrow a large amount of money, or in other words, you are opening a new line of credit
- The lender has made a hard credit check, which can affect your credit score.
Making your car finance repayments on time shows that you are a reliable borrower, which can increase your chances of getting approved for car finance and other types of credit in the future.
Repaying your car finance is not the only thing you can do to build your credit score. You will also need to be repaying all of your other debts on time. If you have a range of different lines of credit, and have made your payments in full and on time, it shows that you can manage credit responsibly.
Lastly, low credit utilisation can help your credit report. You can keep your utilisation low by paying off your car finance balance and not using too much credit on other accounts. ClearScore recommend keeping your credit utilisation below 30% to avoid any negative impact on your score.
How quickly will car finance raise my credit rating?
It’s important to remember that taking out a car finance agreement won’t improve your credit score overnight. Your credit score might increase at a steady rate over a long period of time, as long as you make your monthly repayments.
However, if you miss a payment or fall into arrears, it might negatively impact your credit.
Can car finance hurt your credit score?
There are several reasons that car finance could result in a lower credit score.
When you first apply for car finance, some lenders use a hard credit check. A hard check affects your credit score, and if you have made more than one application for credit in the past couple of weeks, these can quickly add up. Too many of these checks in a short amount of time can cause your credit score to drop as it appears to lenders that you are desperate for credit.
It’s important to know that some lenders such as Moneybarn use a soft credit check at the point of application. This does not affect your credit score but will tell you whether or not the lender can offer you car finance.
We only use a hard credit check once you’ve found the car you’d like, and decide to enter into an agreement with us.
Late or missed payments are another reason why your score might drop. If you miss a payment or fall into arrears with your car finance, the lender usually reports this to credit reference agencies. This means it will show on your credit report and will affect your score.
Settling your car finance early usually won’t affect your credit score. But if your agreement is terminated or you default on your car finance, then this will appear on your credit report and will affect your credit score.
If you want to learn more about credit, check out our related guides:
FAQs about car finance and credit scores
What credit score is needed to take out car finance?
There is no set credit score to get car finance. Being approved depends on lots of factors, such as credit score and affordability. Generally, people with a higher credit score are seen as more reliable to lend to, but lenders usually take into account a range of factors when reviewing a car finance application.
Does having a car on finance affect my credit score?
Car finance can impact your credit score – either positively or negatively, depending on how you use it. If you keep up with your monthly payments over your agreed loan term, this can slowly boost your credit score. Alternatively, missing payments or defaulting can damage your credit score.
For a better road ahead
Moneybarn is a member of the Finance and Leasing Association, the official trade organisation of the motor finance industry. The FLA promotes best practice in the motor finance industry for lending and leasing to consumers and businesses.
Moneybarn is the trading style of Moneybarn No. 1 Limited, a company registered in England and Wales with company number 04496573, and Moneybarn Limited, a company registered in England and Wales with company number 02766324. The registered address for these companies is: Athena House, Bedford Road, Petersfield, Hampshire, GU32 3LJ.
Moneybarn’s VAT registration number is 180 5559 52.
Moneybarn Limited is authorised and regulated by the Financial Conduct Authority (Financial Services reference No. 702781)
Moneybarn No. 1 Limited is authorised and regulated by the Financial Conduct Authority (Financial Services reference No. 702780)
