When it comes to getting the best finance deal, one of the most important factors is your Credit Rating. Having an understanding of your credit rating will help you find the right finance package to suit your circumstances.

Thanks to the large number of websites offering free credit score checks, it’s now a lot easier to access out your credit rating. 

Your credit rating will be used to assess just how much of a risk you are when it comes to lending you money. The better your rating, the more likely you are to get a good finance package with a low Interest Rate.

If you have Bad Credit, then that is a sign that you are more of a risk to lend to. So if you are going to apply for car finance, it’s important to ensure you aren’t doing anything that can cause your credit rating to drop.

Here are 7 factors you should be aware of that can cause your credit rating to drop.

1. Missed repayments

A big part of any finance package is your ability to meet the repayments you have to make across the length of the agreement.

Any lender will want to be sure that you will be able to pay back the amount you have loaned, and so it's vitally important that you make every single payment on time without any trouble.

Responsible lenders like Creditplus, will conduct an affordability check to ensure that you are borrowing within your means. But even so, there are occasions where you might not be able to make the repayments set in your contract.

Whether it’s a credit card, a personal loan, or another form of finance, missing a payment could not only leave you with a penalty charge, but will also be recorded on your Credit Report.

Missed payments on your credit report can seriously affect your credit rating. So, if you do feel like you are going to miss a payment, contact the finance company in advance and let them know your issue.

If the lender can see you're taking steps to resolve the issue in the advance, they may be willing to work towards an agreement that means you won't be penalised for missing the payment.

2. Defaults

If you continue to miss repayments on a finance agreement, there is a chance you may default on the agreement.

This means that the finance company will cancel the contract and place a record of this with the credit agencies in the UK. In this scenario, it’s also likely your vehicle will be Repossessed.

Defaults are a major red flag to a finance provider. While it may have been out of your hands, any potential creditor will only see what’s listed on your file and will either be unwilling to lend to you, or will offer you a deal that isn’t as good as it might be.

Although the data protection registrar states that it should be 3 months of missed payments before a default is issued, it can change from lender to lender.

3. CCJs

A county court judgement, often abbreviated to CCJ, is where you have been taken to court for failure to pay back the money you owe on a finance agreement.

This will come after a default and can be an expensive process, with additional court costs and interest being charged on top of the amount owed.

A CCJ is the last resort of many finance providers and will have a serious impact on your credit rating. They will be recorded on your credit file for 6 years and will often mean you won’t get any finance from the lenders with the best deals until the record has been removed from your credit file.

If you are able to pay off the CCJ within one month of it being issued, it won’t be recorded on your credit file. After this, the judgement will be labelled as ‘settled’ on your file but will still be visible to lenders on your credit report.

4. Bankruptcy

An unfortunate situation for any person to be in is bankruptcy. While it can be the last resort for most, it can also be a way for you to get back on your feet after a time of poor financial management.

But it also means you're unlikely to be able to receive any form of finance until this has been removed from your credit file. Like CCJs, bankruptcy will remain on your credit file for 6 years.

Once you're back on your feet, you can take steps to have the bankruptcy withdrawn. You will receive a document stating this to be the case, which you should send to the credit agencies so they can update their system.

5. Individual Voluntary Arrangement

An individual voluntary arrangement or IVA is a way for a lender and an individual to come to an agreement where bankruptcy can be avoided.

This allows you to put all of the money you owe and the debt you have and consolidate them into a single payment. This can help reduce debt by up to 75% and gives you more time to pay off what you owe.

However, an IVA is not something that lenders will look favourably upon, and you will find it difficult to get a new agreement.

6. You’re not on the electoral roll

A big part of your credit file is how they can track your history over the past few years. One of the ways credit rating agencies do this is by checking the electoral roll.

They will be able to see where you have lived over the past few years. If you’ve recently moved, you should make sure you sign up to the electoral roll.

7. You’ve just changed job

Being able to make the repayments is important to lenders. If you’ve just changed jobs, it could signal a time of instability that you are going through.

If you're settled in the same job for a number of years, you are more likely to be able to make the repayments.

Want help with your finance application?

Creditplus will compare finance options from a wide variety of different lenders to find the best package for you and your credit rating. Whether you have a spotless history or a few issues, your dedicated customer consultant will be able to talk you through the options you have available to you.

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