Here is a quick-guide to help you understand the basics of credit assessments, and how your credit assessment can impact the offers you receive for car finance.

Credit checks help finance companies or lenders to understand how you manage your finances, and if you are suitable for their services. So, really, a credit check is your own personal financial report that gives you a level of ‘creditworthiness.’ 

Credit Reference Agencies (CRAs) look at your credit history and calculate your credit score based on factors like whether you've paid your bills on time, how much money you owe, and how often you apply for credit. This helps them decide whether to lend you money and what interest rate to offer you.

• Three three main CRAs are Experian, Equifax and TransUnion.

What is a Credit Score? 

A credit score is like a grade for your financial health. 

It's a three-digit number that lets lenders know how good you are with money. Each CRA will have slightly different ways to calculate your credit score, and different ‘highest credit scores’ possible.

• From the companies mentioned above, Experian currently has a possible score of 999, Equifax of 1000 and TransUnion of 710.
  

Despite these being different, it is important to note that the central factors in all of their calculations relate to money borrowed and how it is paid off. 

The higher the number, the better. However, There's no one "perfect" number that all lenders agree on, but CRAs can generally let you know if your score is rated as Excellent, Good, Fair, Poor, or Very Poor (or something along these lines).

These categories help you understand how different lenders might see your score before applying to them. For example, if your score is 'Fair,' it might not be smart to apply for loans with super-low interest rates meant for those with higher scores. 

What is a Credit Check?

A credit check, also called a credit report, is one step further into your financial history than the credit score.

CRAs produce a personalised report of your borrowing history. These reports look at your personal finances and your credit history from companies who you have had a financial relationship with.

Examples of these include credit card loan companies, bank payments, direct debits (bills and insurance companies), mortgages and loans. Also considered during a credit report is:

Whether you are registered to vote (electoral roll information)

Public records including:

• County Court Judgements (CCJs)
• If you have need help to manage finances such as Individual Voluntary Agreements (IVAs)
• Bankruptcy 

There are two types of credit reports: soft credit checks and hard credit checks

Soft Credit Checks (Soft Searches)

• Give a sneak peek at your credit report without showing up on records visible to companies in the future. 
• You might do these checks yourself, which is great to keep track of your financial health, or through services comparing credit quotations and offers. 
• They won’t have an impact on your credit score or future credit applications.

Hard Credit Checks (Hard Searches)

• They dig deeper into your credit report and leave a ‘mark’, meaning they can affect your credit score.
• Hard credit checks happen when you apply for things like loans, credit cards, mortgages, utilities, or phone contracts.
• If there are lots of hard credit checks in a short time, it may lead to lenders to be concerned about your creditworthiness. This is because it may seem as though you are financially unstable or that you could over-borrow and not manage the payments.

How Do Your Credit Score and Credit Check Work Together?

Your credit check holds all the in depth details about your financial past. Meanwhile, the credit score is a summary, an easily understandable figure that reflects the overall health of your financial profile that lenders tend to use to get a quick overview of your financial creditworthiness. 

Wondering how to improve your credit score and look after your creditworthiness? 

Good news! Ozoomi has gathered some top tips on how you can effectively navigate credit checks before applying for car finance, and has even gathered our top nine simple ways to build credit and boost your credit score. Check it out for some easy-to-digest insights!