Here are the steps you should take to give yourself the best possible credit score before applying for vehicle finance.
You want to buy a car? You got that kind of cash lying around? If no, then you are like the rest of us – you will need to beg the bank for some vehicle finance before you can drive away with your dream wheels.
This can be a somewhat daunting process (especially for first-time buyers), but virtually every dealership listing on Cars.co.za knows all about helping you to complete a vehicle finance application, which they will send to ALL the banks.
However, if you want a finance application approved, you need to know your credit score and look after it! A good credit score does not occur by magic. It does not come to you because the gods gifted you with mystical credit powers. It comes with time, diligence and effort.
Read first: What is a credit score and why is it important?
Think about it, when you apply for credit for a car, you are asking one of a number of banks to lend you hundreds of thousands of rands over a period of up to 6 years. What every bank wants to know is whether it can trust you to pay them back. Your credit score is basically a measure that a bank can use to work out whether it “can trust you”.
Here are some basic tips to help you towards achieving a favourable credit score. One thing to remember before you start – building a good credit score takes time. It takes months, even years to build the kind of score needed to get a ‘YES’ from the vehicle finance providers. If you don’t have that kind of time, then start here:
Read: How to buy a car if you are blacklisted
Tip 1: Pay all your current bills every month on time
It might seem obvious, but if you want a bank to lend you a significant sum of money, they will expect you to be good at paying the loans you already have. If you can’t pay your current bills, why would anyone give you a new BIG loan for a car? Don’t miss payments. Don’t fall behind.
There are no secrets when it comes to credit providers. It is the credit bureau’s job to find out about every loan you ever had and how diligent you have been at paying it. Think about it, would you lend money to someone when you know that have not paid back someone else?
If you have fallen behind in the past but caught up. If you have missed any payments over the last 2 years. These all will count against you. Banks want to see people who KNOW what it is to borrow money and pay it back diligently. They don’t want lazy payers who pay when they remember!!
Tip 2: Don’t use too much credit on those clothing and credit cards
You may have one or more credit cards or clothing cards right now. Such a card will probably have a “limit” of several thousands of Rand. It can be very tempting to spend up to that limit, but it will hurt your credit score. If you are pushing things to the “limit” right now (quite literally), the bank might deem that you will not be able to repay a new loan over many years.
A good rule is to never use more than half the limit on your cards. It would be even better to make sure you make regular monthly payments to keep your balance below the 50% level.
Start paying a bit more into these accounts every month and you will see an improvement in your credit score.
Tip 3: Don’t apply for credit too often
Banks look at how often you apply for credit and how often you have made applications in the recent past. When people get in financial trouble, they tend to apply to lots of places for loans. If banks see several applications in your recent past, they will think you are in trouble financially.
Tip 4: Beware of small loans or even zero loans
Banks want to know that you are good at managing credit and paying back loans. If you have zero credit or zero loans, then they have no idea if you are good or bad and they will assume the worst!!
If you have never had credit and your first credit application is for a big loan for a car, you will most probably be declined. You need a credit history. Go get a credit card or store card and pay off the balance each month.
It is important to be diligent about paying even these smaller loans. They must be paid on time, even if it is small amount of money. Do not think that because it is small, it is irrelevant. It is extremely important because a car loan is a BIG loan. If you cannot be trusted with small amounts of money, then you are asking a lot if you want a bank to trust you with a large amount of money.
Tip 5. Payday lenders are a big no-no
Payday loans are easy to get. They are in shopping malls and high streets in every town. They are a reality for a lot of South Africans – it has been a hard few years for all of us and these loans fill the gap on a bad month.
We will say it again: car loans are BIG loans which take a big financial commitment for a long time. The average instalment for vehicle finance is R4 000 per month for 6 years! If you are applying for vehicle finance and you have been in the habit of topping up your monthly finances with a payday loan from time to time – will a bank believe that you can pay this big instalment every month for the next 6 years? They won’t If you want vehicle finance, then do not even say the words ‘payday loan’ out loud just in case the bank might hear! Do not touch a payday loan, because if you do, the car finance companies won’t touch you.
Also read:
What is a Credit Score and why is it important?
