Car credit checks: How to check and improve your credit score

A low credit score could stop you from buying your next car on finance, but all isn't lost. Here's your complete guide to both seeing your credit report and making it better.

• Where to check your credit score
• How does credit rating work?
• How to improve your credit score

You might not even be aware it happened but it's likely your credit score will have been checked several times over the past year. If you've applied for a mortgage, a loan or any other kind of finance, your financial background will have been scrutinised.

Sometimes known as a credit search, this involves the company lending you money viewing your credit report, which is essentially a health check on your financial history. Companies don't need your consent to look at your credit history, but require a genuine reason for doing so, such as you buying insurance.

Lots of companies checking your credit score over a short period of time can negatively affect your rating, even if you have never missed a payment, but looking at your own profile won't impact it at all, meaning you can keep tabs on it as often as you wish.

Under the Data Protection Act 2018 you have a right to request a copy of your credit report, dispute any inaccurate information on your credit file and have errors corrected within 28 days.

Who can perform a credit check?

When you see your own credit report it may come as a surprise as to how many credit checks have been carred out on your financial history.

Some companies, such as banks, building societies and credit card providers are obvious ones but it's not unusual for utility companies, mobile phone networks and letting agents if you rent your home to also appear.

It's not unusual to see your employer listed, although it won't have access to your full, detailed credit report because it will have no legitimate reason to do so.

There are two levels of search that reveal different levels of financial data about you, known as 'soft' and 'hard' credit checks.

What is a 'soft' credit check?

Essentially a preliminary search, typically for lower value purchases, 'soft' credit checks have no overall impact upon your credit score.

Sometimes 'soft' checks are also used as a method of cross-referencing your identity, a potentially useful anti-fraud measure.

'Soft' credit checks are only visible on the version of the report you can view, remaining invisible to any companies undertaking a 'hard' check.

What is a 'hard' credit check?

Applying for a mortage, loan, credit card or any other type of finance will result in the lender conditing a 'hard' credit check. Given the inflated prices involved nowadays, it's not unusual for utility companies — your electricity, gas and water providers — and mobile phone networks to opt for this deeper dive.

'Hard' checks are complete searches of your credit report so that companies can make a more informed decision about whether or not to accept your application, based on your overall credit score.

It's vital to remember that these more detailed searches are recorded on your credit report — lots of 'hard' checks will adversely affect your score, potentially for up to six months, which may prevent you from successfully applying for finance.

Each 'hard' check is a log of how many credit applications you've made. Even if you haven't defaulted on a payment, future loan and credit providers might interpret the data as a negative indicator of heavy borrowing or financial struggles — that red flag could result in your credit application being declined.

What is shown on a credit report?

Rather a lot! Your financial history over the previous six years will appear on a 'hard' credit check. That timescale being mutually agreed by financial lenders and regulators.

Your report is a snapshot of all of your key financial comittments, giving an indication of how you manage your money, showing the number of loans and credit arrangements taken out, as well as any outstanding balances for active ones.

Banks, building societies and finance companies provide the monetary information, with other details such as your date of birth and address history being sourced from the electoral register. 

Also included in the report will be anyone else you are financially connected to, such as joint accounts, mortgages, business partners or joint court judgements.

Crucially for lenders, the report logs all late or missed payments on existing or past finance arrangements, as well as legal matters such as County Court Judgments (CCJs).

Other relevant information includes whether your home has been repossessed and if you have been declared bankrupt or entered into an Individual Voluntary Arrangement (IVA).

What isn't shown on a credit report?

Although credit reports include a wealth of information to guide lenders about whether or not you represent a financial risk, it is only a record of when you have borrowed money, with one exception — student loans are not shown.

Other factors which would influence your ability to pay a loan back, such as your salary, details of savings accounts or your current account balance do not appear on it.

Similarly, if you have fallen into arrears with your council tax or have a criminal record, then those details are not revealed by a 'hard' credit check.

How can I check my credit score?

There are numerous online options for checking your own credit report, all of which offer a free check as they are legally obliged to.

While some will show your complete report free-of-charge, others require a subscription payment if you want to view more details. Usually, there's a 30-day free trial, though — just remember to cancel your subscription before the time is up if you don't want to be charged.

What information will I need to check my credit score?

Checking your own credit report is simple, although be aware it usually involves creating an account with the company providing it.

Typically for over-18s, your full name, date of birth and addresses over the past three years are all that's required, but some services may request mobile phone numbers and your mother's maiden name.

To help verify your identity, you will also be asked details relating to your bank accounts, any credit cards and your mobile phone network, so have those details to hand in advance for ease of reference.

Why isn't my score the same with different credit check companies?

Each credit check agency uses different scoring methods meaning your overall score is likely vary between them — that's normal.

What is far less useful is that it's nigh-on impossible to directly compare like for like — Experian's maximum score is 999, while bafflingly, Intuit Credit Karma's rating goes up to 710.

More important is how each credit check company rates your score in terms of poor, good or excellent. This is what will be important to lenders who want to assess your application, rather than the specific number.

All the big high street banks, building societies and credit card companies share their data with the three major credit reference agencies — Experian, Equifax and TransUnion (also called Noddle), so the majority of the information on your report should be the same.

There may be some differences as smaller lenders, such as payday loan companies, may only share information with one credit reference agency.

Why is my credit score low?

We're not saying credit scores are a dark art, but there are certainly lots of different factors that can affect your score.

You may have never been in debt and paid all your bills on time but that doesn't necessarily mean you will have a good credit score.

While your payment history — in other words, whether you have paid your bills on time — is the biggest single influence on your credit score, it usually only accounts for up to 40% of your overall rating.

Each individual financial arrangement will also make a difference. A very high balance on one credit card can be seen as a risk, for instance, the theory being that other credit cards you have may follow suit.

There is also your utilisation rate, often called your debt-to-limit ratio. This shows how much you are using your credit limits — it's essentially the ratio of your credit card balances against the credit limit of those cards. So even if you haven't missed a payment, a high utilisation rate can be an indicator that you're at risk of defaulting on a payment.

Other factors include the length of your credit history. A shorter credit history means there's less data on which to base a score about how you manage your finances, which can mean a lower score. This is frequently a factor for older people with little to no history of having loans or buying items on credit.

Can mistakes on my credit report be fixed?

Although rare, you may find mistakes or even a fraudulent activity on your credit report — it's vital to get these sorted quickly.

A credit report is not set in stone and information can be changed if it's incorrect. Remember, the credit report is just that — a report — the information has come from various sources and it is they who will have to be contacted to resolve any problems.

Handily, most credit check companies will contact organisations on your behalf, while making a note on your credit report that an entry is being questioned. If the company agrees to the changes, then your credit score will likely increase. The credit check firm has 28 days from your request to tell you if it has removed the entry, amended it, or taken no action.

If they don't or refuse to make changes, you can add what is called a Notice of Correction to your report with your comments — useful if you want to explain something such as a sudden illness that meant you missed a credit card payment. If you want to take it further, you can escalate it to the Information Commissioner’s Office.

Should you wish, there is nothing to prevent you from contacting any banks, building societies or credit card companies yourself if you think information is wrong. It's also very straightforward to contact your local Electoral Registration Office, if there's an issue with your address details.

Is there a minimum credit score for car finance?

There's no hard and fast rule when it comes to a suitable credit score for getting finance for a car. It depends on what kind of finance, such as whether it would be a car loan or a PCP, and the finance provider arranging the package for you.

While there's no specific minimum score for getting credit to buy a car, if you have anything below a Fair credit rating, you may struggle to get your application accepted.

Even if your application is successul, it's also important to remember that the lower your credit score, the higher the rate of interest you will be offered. 

Can I still buy a car with a poor credit rating?

Yes you can, but be prepared to suffer when it comes to the rate of interest you'll be paying. The best deals are unlikely to be available to you, so searching for a car finance deal can be frustrating — the very attractive headline figures are only representative, meaning and the actual APR is dependant on your credit score.

This doesn't mean you can't get finance for a new car, but it means there will be less choice and you will have to pay more in interest. It's better trying to improve your credit score first and remember that repeated hard checks will negatively affect your credit score, so do all you can to avoid them.