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Do I need a good credit rating to lease a new car or van?

Do I need a good credit rating to lease a new car or van?
20th August 2020

What is a Credit Score? 

A credit score is simply a rating based on your financial history. This information is used by a finance company to determine whether you qualify for the offer that you have applied for.

To establish the score, your current and historic financial information is gathered by a number of Credit Reference Agencies and stored, below is a list of the main agencies in the UK, some of these offer are a free service, if you follow the links you can view your personal credit rating;

Experian Limited

Equifax Limited

TransUnion International UK Limited

ClearScore Technology Ltd

Credit Karma UK Limited

TotallyMoney Limited

The two main Credit Reference Agencies that are used by the UK contract hire and leasing finance companies are Experian Limited and Equifax Limited.

Each provider will show your score in a different way, but all will give you an idea on how you rank, from poor to excellent.

Your credit score reflects how you manage your financial affairs and accounts, a higher score will give the finance company greater confidence that you will repay any credit offered. Having a high credit score will give you access to more competitive interest rates on most personal loans, credit cards, mortgages hire purchase agreements, this is because you represent a lower risk.

Not only will you find that you get offered a better interest rate, you will also find that a credit decision is made quicker, the finance companies will use a score card, this is a set of minimum values you must achieve to establish if you qualify for the rate and if you do, you will get an instant answer.

Do I need good credit to lease a new car or van?

A popular myth is that a car or van lease agreement is like a daily rental agreement and that your credit is not taken into consideration. This is not the case, all of the main UK contract hire and leasing companies look at an applicant’s credit score, a lease agreement is still a finance agreement and as such your previous credit history will determine if you get accepted.

In addition to demonstrating your creditworthiness by having a good credit score, you will also have to demonstrate that you can make the payments. This is called an affordability test and it looks at your income/expenditure position and any possible future changes.

The finance companies have a responsibility under FCA guidelines to ensure that they are only lending to customer whom they believe can make the payments as they fall due.

What will affect my Credit Score?

There are several factors that will have an impact on your credit score, these include;

• Can the finance company find you on the electoral role?

• The length of your credit history information and how long you have held credit accounts for.

• What is your previous payment history like, have you missed any payments or mortgage arrears?

• Have you had a County Court Judgement (CCJ), if so, has it been settled?

• Do you have any defaults on your account?

• What is your credit utilisation? In other words, are your credit cards up to or past their credit limits?

• Do you have a large amount of unsecured debt? This will include personal loans and credit/store cards.

• How many recent credit applications (hard searches) have you made; this might demonstrate that an applicant is seeking multiple credit facilities at once.

• Short term borrowing. Utilising pay-day loans and other short-term loans is viewed as living beyond your means and is an ‘affordability’ concern.

To summarise, to apply for a personal contract hire lease agreement on a new car or van, you will need to have a Good to Excellent credit rating, if you are unsure on your own personal credit score, we recommend that you use one of the Credit Reference Agencies listed above to find out before you apply.

Once you have your credit report and score, feel free to call or email us and we will in confidence advice you on your eligibility to take out a new lease agreement.

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