Have you been refused Car Credit because of your poor Credit Rating?
If you want to lease a car either through business leasing or personal leasing, you will have to go through the process of a credit check. This is where the finance company sends a request to one of the credit reference agencies, in order to obtain your credit score. If your credit score is below the level required by the finance company, which does vary between companies, then you will be refused car credit.
Generally speaking, if you have been refused credit on a car lease or turned down for car finance, it will be because you have a low credit score, a less than perfect credit history, or you have a high debt-to-income ratio (all of which can be seen on your credit file held by the credit reference agencies).
Reasons why you might have a poor or bad credit rating
- You have payment arrears with, for example, your mortgage or a credit card
- You have defaulted on a loan, even if it has not gone to court
- You have County Court Judgements (CCJs) against you for non-payment of debt
- You have entered into an Individual Voluntary Agreement (IVA) to pay off debts
- You are an undischarged Bankrupt
- You have never had credit before, such as a bank or store loan, or a credit card
This last point may seem a little strange, as someone who has never taken out any credit cannot possibly have a bad credit history. But a finance company checking you out for a car lease would rather see a history of regular payments being made in accordance with a credit agreement, than no history at all. This is because you represent a good risk if you have already proven that you can borrow responsibly and make repayments on time.
Top 10 reasons why you may be refused Car Credit
- You have a bad or poor credit rating for one of the reasons outlined above
- You are under the age of 18
- You are unemployed and do not have a regular income
- Your monthly income is less than deemed necessary to support your application
- You have changed address a number of times in the last year or two
- You have changed jobs a number of times in the last couple of years
- You are not a UK resident (if you are applying for finance in the UK)
- You are not traceable at your current address, i.e. not on the Electoral Register
- Your outstanding debts and commitments are high in relation to your income
- You are a new start business with little or no trading history or accounts
So how do you lease a car when you have bad credit?
You can see how a poor credit history can affect your ability to lease a car, so the most important thing to do is to set about cleaning up or repairing your credit file. Your aim is to try to improve your credit score as much as you can, even before you apply for car leasing finance.
First, obtain a copy of your credit file from one or more of the main credit reference agencies. The three main consumer credit reference agencies in the UK are Callcredit, Equifax and Experian, and each may hold different information about your credit history. You have the right to request a copy of your file, for which there may be a small charge.
Secondly, after inspecting your file, you can ask the credit reference agency to remove any items that are incorrect, or have since been rectified (such as a debt that has now been settled). Once this has been done, your credit score should go up. If you then apply for a car lease and are refused, you can ask the lender to explain the main reason for their decision.
Improve your credit rating by taking out a credit card if you haven’t got one, and paying off the balance in full each month so as not to incur any interest charges. Also, try to pay all your bills on time and minimize the number of finance applications that you make. Each application is recorded on your file, and declined applications will further harm your credit rating.
Finally, you could offer to pay a larger initial payment than the usual amount (equivalent to 3 monthly rentals), although this is often mandatory for people with poor credit.
If all else fails, it’s probably best to wait at least six months before you apply again in the hope that your credit score will have improved by then. Unfortunately, most UK finance companies will not accept co-signers or guarantors, although this may be a solution in other countries.
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