A recent survey indicates that individuals in Great Britain are the least likely in Europe to consider their credit score. Nearly half of adults (46%) are even unaware of their current financial rating.

Good credit-worthiness can open doors to numerous benefits, including access to better borrowing terms, lower interest rates, and increased chances of successful loan applications. Latest statistics reveal that approximately one-in-five Brits have a poor credit rating.

However, there’s a silver lining as there are several methods to enhance your score, including opting for car finance. Jonathan Such, head of sales at vehicle finance company First Response Finance, has now revealed how it can bolster your credit score, establish credit history, create a positive payment footprint and more, reports the Daily Record.

It’s crucial to understand that while this is a high-value purchase on credit, there are other ways to improve your credit score such as registering on the electoral roll.

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 particularly true for motorists who are new to credit or have a limited credit history.

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

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

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

Build a positive payment history

As well as helping (younger) drivers get on the credit ladder, taking out car finance allows you to build a positive payment history.

Sticking to your monthly instalments and making on-time payments will work wonders on your credit rating, as it shows you have the ability to manage and keep up with your bills. This is something that future lenders will consider carefully when deciding whether to give you a loan or not.

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

Show financial responsibility

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

Jonathan stated: “Successfully managing a car loan will show that you’re a reliable borrower. It indicates that you’re able to meet deadlines and respect agreement terms, meaning you aren’t a risk to credit lenders.”

He added: “Reliability and responsibility are things that finance providers take into serious consideration when evaluating an application. A good track record of timely payments can make the difference between a successful and rejected loan request.”

“Demonstrating trustworthiness by fulfilling your car finance payments can be extremely beneficial if you plan to apply for other types of credit, such as personal loans or mortgages.”

Show a diverse credit mix

A ‘credit mix’ refers to different types of loans you’ve taken out.

Simply put, there are two forms of credit – instalment and revolving. The former consists of loans that have fixed monthly repayments and a set end 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 specific end date or balance (i. e.

, credit cards).

Credit scoring models tend to favour borrowers with a diverse credit mix, as it proves that they’re able to manage different types of loans and credits.

Securing car finance and incorporating instalment credit into your file can enhance your credit rating, thereby improving your ‘reputation’ amongst potential lenders.