The expert says that boosting your credit score with car financing can help with future loans

A recent survey indicates that people in the UK are the least likely in Europe to consider their credit score. Almost half of adults (46%) don’t even know their current financial rating.

Good credit can open the door to numerous benefits, including access to better loan terms, lower interest rates and increased chances of a successful loan application. The latest statistics show that around one in five Britons have a poor credit rating.

However, there is a reason for the advantage, as there are several ways to improve your score, including opting for car financing. Jonathan Such, head of sales at vehicle finance company First Response Finance, has now revealed how it can improve your credit score, establish credit history, create a positive payment footprint and more, the Daily Record reports.

It’s important to understand that while this is a great credit purchase, there are other ways to improve your credit score, such as getting on the electoral rolls.

Establishing credit history

One of the key advantages of opting for car finance is that it can help establish a longer credit history. This is especially true for drivers who are new to credit or have a limited credit history.

Jonathan Such said: “Buying a car is often one of the first significant investments you make, especially if you’ve passed your test at a young age and want to hit the road as soon as you get your licence.”

“There’s a chance that at this stage in your life you have a limited credit history – or no credit history at all. In this scenario, a car loan can launch your credit profile, making it easier for you to obtain other forms of credit in the future.”

“In fact, the length of your credit history is an important factor in a lender’s eyes and can actually account for 15% to 20% of your credit score.”

Build a positive payment history

In addition to helping (younger) drivers get on the credit ladder, getting auto finance allows you to build a positive payment history.

Keeping up with your monthly payments and making your payments on time will do wonders for your credit rating because it shows that you have the ability to manage and keep up with your bills. This is something that future lenders will consider carefully when deciding whether or not to grant you a loan.

Finally, finance providers are more likely to lend you money if they see that you have been able to keep up with regular payments in the past.

Show financial responsibility

In line with the above, making monthly payments on time and building a positive payment history through auto financing can demonstrate financial responsibility and creditworthiness.

Jonathan stated: “Successfully managing a car loan will show that you are a reliable borrower. It shows that you are able to meet deadlines and honor the terms of the agreement, which means you are not a risk to creditors.”

He added: “Reliability and accountability are things that funding providers take seriously when assessing an application. A good history of on-time payments can make the difference between a successful loan application and a rejection.”

“Demonstrating your trustworthiness by meeting your car finance payments can be hugely beneficial if you’re planning to apply for other types of credit, such as personal loans or mortgages.”

Display a diverse mix of credits

A “credit mix” refers to the different types of loans you have taken out.

Simply put, there are two forms of credit – installments and revolving. The first consists of loans that have fixed monthly repayments and a set closing date, such as car finance.

The latter, on the other hand, is a type of loan that has a minimum monthly repayment figure but no end date or specific balance (i.e.

Credit cards).

Credit scoring models tend to favor borrowers with a diverse credit mix because they demonstrate that they are able to handle different types of loans and credit.

Securing auto financing and incorporating installment credit into your file can improve your credit rating, thereby improving your “reputation” with potential lenders.