How to improve a bad credit score to secure a lease deal

The process of applying to lease a car or van involves passing a credit check. This is to protect you from committing to a contract that you may not be able to afford long-term.

If you have bad credit, it can be a little more difficult to get a leasing contract. In this article, we go into more detail about how to improve a bad credit score so you can secure a finance deal and lease the vehicle you want.

Pay your bills on time

A credit score uses your past financial related behaviour to help predict what you may do in the future. How you pay your bills is one of the main criteria a lender will look into when reviewing your application.

The easy way to influence this element of the credit score is to ensure your bills are paid on time every month. If you pay late, miss a payment, or offer less than you originally agreed, this will have a negative effect.

This doesn’t just apply to loans or credit card bills. All of your household related costs such as rent, mortgage, phone and utilities are equally as important. Setting up Direct Debits or reminders will help to ensure that you never miss a payment.

If you are behind on any bill payments, either clear the debt or arrange a payment plan as soon as possible. Late payments will remain on your credit report for 6 years, but older later payments can have less of a negative effect than more recent ones.

Remain debt free and keep on top of credit card balances

Your credit utilisation ratio accounts for as much as 30% of your final credit score calculation. Agencies will work this out by adding together all your current credit card balances before dividing the total figure by your existing credit limit. For example, if you charge £1,500 each month to your cards and your total limit across all those cards is £10,000, your ratio would be 15%.

Anyone can calculate their ratio without referring to an agency. Take all credit card statements from the previous 12 months, before adding all the balances together and dividing by 12: this will tell you your average monthly credit.

Most lenders like to see a ratio below 30%, and anyone who has a very good credit score generally has a low credit utilisation ratio. By using this calculation, lenders can determine how well you manage your credit. The best way to improve your ratio is to pay off existing debt and ensure credit card balances remain low.

Credit Card and Computer

Only apply for credit accounts when you need them

Opening lots of different credit accounts will not have a positive impact on your credit score. Not only will it add too many credit searches onto your report, but it also offers more temptation to spend and build up debt.

Limit your credit searches

Every type you apply for credit – whether successful or not – a ‘footprint’ is left on your report. The more footprints you have, the more it can negatively affect your credit score. This is especially true if you have made multiple applications for credit that have not been granted. Over time this effect will fade, as searches only remain on your report for two years.

Correct any credit report mistakes

It is important to double check your existing report to ensure all of the information currently being held is accurate. You are able to dispute any issues you believe are incorrect. Doing this could make the difference between having a good credit score that sees your application accepted or being turned down. Check the accounts listed on the report are in order, and if not, ask that they are changed as soon as possible. You usually have 28 days to report any inaccuracies from the moment you receive your report.

Computer with Stats on

Register with the electoral roll

Credit agencies need to verify the identity of the person who is making the application. The best way to do this is to use the electoral roll, which will not only confirm your name but also your address. If you are not already registered, this will make it much harder to get credit, as the lender will not be able to confidently confirm who you are.

Check if you have any negative links

Another reason why your credit rating could be poor is because a partner or family member has a credit rating linked to yours, usually because you use a joint account. If they have a bad credit rating, there is a chance it could have a negative impact on yours too.

Remain in the same address

Lenders do not react well to uncertainty, and if they can see you have lived at a number of different addresses this could lead to them refusing your application. Of course, if you do not own a home and rent a property, it is not always under your control how often you have to move. But where possible, presenting a stable lifestyle will reflect positively on your score.

How do I check my credit score?

Experian, Equifax and TransUnion are the three main credit agencies in the UK. There are two methods available to check your credit score with these organisations: either online or through the post. Both of these options are completely free. You are legally entitled to this and your request cannot be refused.

This is known as your full statutory report, but if you choose to take up a subscription membership with any of the agencies, you may be able to access more up-to-date information. Some do offer a free trial, which can be a better option in the short-term.

Why do finance companies use my credit rating?

Your credit rating allows lenders to review your ability to manage credit and assess the level of risk involved. Each lender has its own method of reaching its final decision, which is based on a wide range of information, and that includes your credit report.

When lenders are considering granting credit to an applicant, they want as many assurances as possible that it will be repaid back on time and without any issues. Each time they are providing credit, they are taking on the larger element of risk. By referring to your credit rating, they can understand how likely you are to repay without defaulting.

At Leasing Options, if you do have a bad credit history, you might need to make higher monthly payments for your vehicle, but you’re not likely to be turned down altogether with a poor credit score. If you want to find out more information about leasing with bad credit, check out our FAQs or get in touch with our friendly and helpful team.