Are you thinking about buying a new car? Are you part of the approximately 21 per cent of Australians who have a bad credit score?

A low credit score can hold you back from getting approved for a variety of loans, including car loans. If you’re confused about how credit scores work or what influences them, keep reading. Everything you need to know is explained below.

What Is a Credit Score?

A credit score is a number that summarises your financial responsibility. It represents a variety of things, including the amount of money you’ve borrowed, your repayment history, and the number of credit checks you’ve gone through. 

In Australia, there are 3 different credit bureaus: Illion, Equifax, and Experian. They divide credit scores into the following categories:

The higher your credit score the less likely auto lenders (and other types of lenders) are to see you as a risk. They’ll be more inclined to approve your loan application and give you good interest rates and terms.

5 Things That Negatively Affect Your Credit Score

There are a lot of reasons why you might be dealing with a low credit score right now. However, the following are some of the most common issues that could impact it: 

1. Missing Repayments on Existing Loan

Your payment history is one of the most important things that affect your credit score. Missed repayments on existing loans and credit cards (as well as Afterpay and other types of “Buy Now, Pay Later” payments) will hurt your score quite a bit.

2. Using Too Much Available Credit

You may have $5,000 of available credit on your credit cards. That doesn’t mean you should be running up that amount of debt every month, though.

When you use too much of your available credit, that affects your utilisation ratio. This is especially true if you don’t pay off your balance regularly or make consistent payments.

If the credit bureaus mentioned above see that you’re constantly pulling from non-existent funds (i.e., not using cash), that can be a red flag and may lower your score. 

3. Applying for Too Much Credit in a Short Time Period

On a similar note, if you’re constantly applying for new loans or credit cards, that can also be a red flag to the credit bureaus and may lead to a lower score.

This kind of behaviour makes it look like you’re desperate for money and don’t have enough on hand to cover all your bills. If this is the case, lenders (including auto lenders) may be wary about loaning you money and will question whether or not you can pay it back.  

4. Defaulting on Accounts

When you don’t keep up with loan or credit payments, this is known as defaulting. Missing a payment hurts your credit score, but defaulting on debt altogether is even worse.

If you have a habit of ignoring your debts until they get sent to collections, you’re not representing yourself well to the credit bureaus.  Lenders will then be hesitant to approve your application for new loans.

5. Applying for Balance Transfers Too Often

Balance transfers involve moving debt from one account to another.

Are you frequently shifting your credit balances around, perhaps to try and get a lower interest rate or buy yourself a little more time before you have to pay off debt? If so, you may be hurting your credit score and making it harder for yourself to qualify for auto loans now and in the future.

How to Improve Your Credit Score

It doesn’t matter what issues are impacting your credit score. The good news is that you can always improve it.

Your credit score is constantly evolving, and you can influence it positively as well as negatively. Here are a few steps you can take today to start working toward a higher score:

• Pay bills on time: Avoid missed payments by automating your bills or setting reminders on your calendar so you don’t forget.

• Pay down your existing debts: This will lower your credit utilisation ratio and give your credit score a quick boost.

• Take care of outstanding (late) payments: If you’re behind on bills by a few months (or longer), focus on those first before you start paying down other debts.

• Regularly review your credit report: Be sure to dispute inaccuracies (such as old accounts that you know are paid off) that could be dragging down your score.

• Limit new credit requests: Don’t apply for new loans or credit cards until your score has improved.

There is an important exception to this last rule. If you work with a car loan broker like Naked Loans, you can apply for a bad credit car loan without damaging your credit score. It’s also free to apply for a loan when you work with us, and it only takes 10 minutes! 

Get Help with Bad Credit Car Loans at Naked Loans

Perhaps you want to work on your credit score, but you also need help with car finance now. After all, how are you supposed to pay down your debt if you don’t have a reliable car to get you to work?

If this is the case, working with a car loan broker who specialises in bad credit car finance is your best option. 

At Naked Loans, we believe everyone deserves a second chance. Regardless of your circumstances or credit history, our team can help you get a great car loan even if you have bad credit. When you work with us, there’s no fuss, no stress and no judgement. We help you to discover your options and drive away in a new car as quickly as possible!

Check out this blog post on bad credit car loans to learn more about what we can do for you, click on the button below to apply today.