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Zuto is a credit broker, not a lender. Our rates start from 8.9% APR. The rate you are offered will depend on your individual circumstances. Representative Example: Borrowing £9,000 over 60 months with a representative APR of 20.9% the amount payable would be £234 a month, with a total cost of credit of £5,047 and a total amount payable of £14,047.

Zuto Limited. Registered in England under number 05722976. Registered office: Winterton House, Winterton Way, Macclesfield, Cheshire SK11 0LP. Zuto Limited is acting as a broker and not as a lender. Authorised and regulated by the Financial Conduct Authority, registration number 452589. Zuto can introduce you to a limited number of finance providers, based on your credit rating, Zuto won't charge you anything for this service, but do get a fee from the lender which varies based on the product or amount borrowed.

Does car finance affect your credit score?

We’re often asked if car finance will have an impact on a person’s credit score – and occasionally if car finance will actually improve someone’s credit rating. In actual fact, both these outcomes are possible – but it depends on how you apply and how you make your repayments. 

Here, we’ll explore the subject in a little more detail – explaining how to avoid any negative impact on your credit score – and how you can use car finance to improve your credit history.

What is a credit score?

Everyone who lives in, or has had credit in the UK, has a credit score. There are different companies who provide these scores – known as credit referencing agencies – but the purpose is generally the same; to give lenders an indication of how risky it would be to provide you with a loan.

The better your history of repaying credit, the better your credit score is. However, since there are three main companies who provide these scores (Equifax, TransUnion, and Experian) – the actual numbers involved often don’t mean a great deal to anyone but the lenders who use them as a reference. For example, a score of 550 with TransUnion would be lower than average – but the same score with Equifax would be good.

A host of different things can have an effect on your credit – but there are two significant parts of having car finance that can alter your score; applications, and repayment conduct.

Does applying for a car loan affect your credit score?

The first thing you should be aware of are the checks that lenders do when you actually apply for finance.
Now, it’s important to understand what ‘apply for finance’ means – as there are two possibilities that lenders will offer. 

In some cases, a finance company will offer to perform a ‘soft check’ on your finances. This kind of check is designed to give you a decision in principle, based on information you provide and a ‘footprint-free’ check on your credit file. This kind of check doesn’t have an impact on your credit score and lenders will not be able to see any record of it.

While soft checks do not show on or have an impact on your credit score, a full credit check that a lender carries out when you apply will.

Now, that’s not to say that applying for car finance will damage your credit rating – but applying a number of times might. For example, if you applied with Ford, then changed your mind; applied with Ferrari but were declined, then drove to Jaguar and made a third application, loan companies are likely to wonder why you’re making so many applications. Don’t forget, finance providers don’t like risk – and if there’s any reason for them to think you’re not a good prospect for paying your loan back, they will either refuse to provide credit – or offer a higher interest rate.

So, applying for car finance shouldn’t affect your credit rating – but if you do it numerous times, it might have a negative impact.

Does a car loan help your credit rating?

We now know what car finance applications can do to your credit rating – but what about actually getting and repaying a car finance agreement?
The truth is, the effect finance has will depend entirely on how you conduct your repayments. If you make every repayment on time, this will be seen as proof that you’re capable of repaying a loan in the way finance companies like.

On the other hand, if you miss payments; fall behind on your payment plan, or your lender is required to take further action against you – your credit rating can be severely damaged. As a result, you may find it harder to track down good interest rates in the future – or you could struggle to find a company that will offer you credit at all.

How fast will a car loan raise my credit score?

Unfortunately, repaying credit of any kind can take a while to turn into a positive result on your credit score. The credit referencing agency Experian report that information relating to payments can take up to three months to reach them – so it can take at least this long for a good repayment track record to start improving your credit history. 

Other related FAQs

Looking for more related content to this? We’ve picked a selection of related topics that you may find helpful

There is no specific minimum credit score needed to finance a car. While your credit score is one factor – lenders will consider a number of different pieces of information; including affordability and the type of vehicle you’re buying.

The best way to get car finance with a poor credit rating is to take steps to rebuild your credit history, such as ensuring you’re on the electoral register, making payments on time and using ‘rebuilder’ credit cards.

Your access to agreements may be more limited, but it is possible to get car finance with a poor credit history.

It is possible to get car finance with a default, but it may be more difficult to do so than if you had a good to excellent credit score.

If you apply for car finance shortly before applying for a mortgage, this can affect your mortgage price. However, if you have a mortgage in place already, it will have no impact.

If you’re refused car finance, find out why. You may need to correct inaccuracies in your credit report or take steps to improve your credit score. You might also want to consider using a guarantor.

It is not possible to get car finance in the 12 months after being declared bankrupt or until your bankruptcy is discharged through the courts. Getting finance without declaring that your bankrupt is against the law – and could lead to an extension of your bankruptcy.

It may be possible to get car finance if you have an Individual Voluntary Arrangement (IVA) currently in place. To do so, you’ll need to seek the permission of the Insolvency Practitioner dealing with your case.

In the short term, applying for a car loan can lower your credit score. However, over time if you make your repayments ontime, it can help you to build your score.

Both Equifax and Experian are credit referencing agencies. They use slightly different scales to present your credit rating – but both can provide lenders with some of the information they need to decide whether they’re willing to provide you with car finance.