A credit score is seen by lenders as a measure of your risk as a borrower. The higher your score, the lower the risk you are. So what happens if you have no credit score? Can you get a car loan with no credit? Let’s find out…
Can you get car finance if you don’t have a credit score?
Your credit score is based on your credit history. Among other things, it shows how many debts you have and how reliable you’ve been paying them back. So, when asking the question “Can you get a car loan with no credit?” you may assume that the answer is quite complex. It’s far from.
But if you don’t have much credit history, you could find it harder to get car finance.
You may think that no history is better than a bad history. You’ve never been in debt, have a reliable income, never borrowed money and always paid your bills on time – surely you’re a much safer bet for a lender.
Unfortunately, it doesn’t work that way.
Lenders need to know that you’ll repay your debt, and the best way for them to know that is to see how you’ve repaid debt in the past.
If you have no credit history, it’s simply harder for them to gauge what you’d be like as a borrower.
How do I find out my credit history?
It’s easy to find your credit history. There are three main credit reference agencies – Experian, Equifax and TransUnion.
Each has a credit file on you, which they use to create your credit report. The report will detail factors such as your address, any credit you’ve taken out and the age of your accounts.
The credit reference agencies will also score your report – the higher the score, the better.
All reports are available to access online or, if you prefer, you can pay a small fee to have a hard copy sent to you.
Why don’t I have a credit score?
When asking “Can you get a car loan with no credit?” you may also wonder why it is that you have no credit score. There are a few different reasons you may not have enough credit history to have generated a credit score. Here are the main ones:
You’ve never borrowed money before
Your credit history is based on traditional credit accounts. It’s updated when a creditor – such as a credit card or mortgage provider – reports a record of you opening an account to one or all three of the credit reference agencies.
If you’ve never had any credit in your name, you can’t be given a credit score, as there isn’t enough past behaviour to base your creditworthiness on.
Perhaps you’ve only ever used cash to purchase goods or have only ever used your spouse’s or partner’s names on accounts.
Whatever the reasons, a lack of credit will mean a lack of credit history and a no credit score.
You’ve never opened a bank account
While a bank account doesn’t class as credit – unless there’s an attached overdraft – it does show lenders a certain amount of responsibility when it comes to your finances.
Your credit report also takes your address stability into account, so it’s important to ensure you’re registered on the electoral roll if you’re looking to improve your credit.
You’re young
If you’re under 18, you won’t have a credit score, as you can’t take out credit.
However, even if you’re over 18, young adults often find they have no credit score simply because they haven’t had as much time to build up a history of credit.
You haven’t used credit in a while
Your credit history typically spans the last six years, so lenders can see how you’ve managed your money in the recent past.
This means if you haven’t opened a credit account or used one in that time, you may not have a credit score anymore.
Essentially, in this case, you’d be starting from scratch as if you were a new borrower.
You’re new to the UK
If you’re new to the country or have recently returned after a prolonged spell away, you’ll often find you don’t have a credit score because you haven’t applied for or used credit in the UK in the past six years.
Even if you have an established credit history in another country, it wouldn’t count towards your UK credit score.
How to improve your credit score
In relation to “Can you get a car loan with no credit?” – you may want to learn ways to improve your credit score, too. If you don’t have a credit score, take heart. It’s not difficult to build one, it may just take some time. Here are some simple steps you can take:
Open a bank account
If you don’t have one already, opening a bank account is the first step you should take if you want to build your credit.
For lenders, a bank account can prove stability. It can also help you manage payments and your money, which all goes to improving your credit.
Register on the electoral roll
If “Can you get a car loan with no credit?” is the question on your mind, one of the ways to change your credit ranking is to register on the electoral roll. One crucial reason your credit report exists is to help verify your identity. This is why registering on the electoral roll is so important to help build points on your score.
It also proves you have a permanent address and suggests stability.
Start building your history
As we’ve established, getting credit when you have no credit history is difficult. There are a few things you can do, though.
Once your bank account is established, ask whether you can have an overdraft facility. As this is a type of credit, it will show up on your report.
Make sure all your utilities, broadband, insurances and household bills are in your name.
Often companies, particularly utility companies and contract mobile phone providers, will report to the credit reference agencies.
So by having these bills in your name and paying them on time, you’ll soon start building up your score.
Use automatic payments
If you can pay all your bills by direct debit, this will ensure you won’t forget a payment.
A missed or late payment can play havoc with your credit score. Don’t forget to ensure you have enough money in your account to cover the payments.
Use a credit builder
There are products out there that are specifically designed to help you build your credit history.
Usually, these are pre-paid cards with a credit building option that you pay back in monthly instalments.
These cards can also come with higher interest and even a monthly fee, though, so make sure it’s the right option for you and whether you need it to build your history.
After you’ve spent some time building up your credit history, you can apply for a regular credit card to build your score further.
If you manage that card responsibly, after time, the provider should be able to decrease your interest rate and increase your credit limit.
Use soft searches
Ironically, applying for credit can actually damage your credit score.
When you apply for credit, the creditor will do a hard search on your credit report, which shows up to anyone who looks at your report in the future.
Lenders see multiple or frequent applications for credit as bad, as it suggests you’re not managing your money well.
Always carefully consider before you apply for credit to avoid having to apply multiple times.
Using a soft search – such as a comparison site for credit cards or one that a company offers – so you can find out whether you’ll be accepted for credit without leaving a damaging mark on your credit report.
Do you need a job to get car finance?
You don’t necessarily need to be employed to get car finance. However, car finance providers will want to see that you can pay the loan back, so you’ll have to have proof of income that will show you can afford your repayments. For more information, please read our article on affordability checks.
Do you need a deposit to get car finance?
If you don’t have a credit history, some lenders may need you to put down a deposit to get car finance.
However, this depends on the lender.
Generally speaking, a deposit will lower your repayments – so the larger amount you pay upfront, the less you’ll need to repay every month, and the lower the total cost of borrowing will be.
Are there options if you have bad credit?
Having bad credit can also hamper your chances of securing finance.
At Hippo Motor Finance, we can help with options if you have bad credit finding you an affordable solution.
We’ll only ever use a soft search when looking for finance for you, so as to not impact your credit score.
And we only ever deal with responsible lenders who have your best interests at heart.
Start your search today.
Can I use a guarantor?
If you have no credit, guarantor car finance is one option.
As they’ll be liable for repayments, if, for whatever reason, you can’t make them, a guarantor will pose less risk to a lender.
Remember, they also need to have a good credit history.
And while you’re still responsible for the loan, a guarantor can help you get a better deal than you may be eligible for on your own. Read our article on leasing a car with a guarantor for more information.
