Why Does Credit Score Impact My Car Loan In Burford?

Why Does Credit Score Impact My Car Loan In Burford?

Posted on April 9, 2021

We talk a lot about credit scores on our blog. They are an essential ingredient in all new car loans and something nobody can afford to ignore. They are important for much more than just Burford car loans though.

That’s what we’ll cover today.

What’s in a credit score?

Your credit score is a number between 300 and 900. The higher the number, the lower the risk you are thought to present when borrowing. The lower the number, the higher the risk. It’s nothing personal, it’s just how the system works.

Your credit score is influenced by your credit history, payment history, credit mix, debt to income ratio and some other stuff. All combine to provide a score that lenders use when deciding whether to lend to you or not.

Why is your credit score so important?

Your credit score is important because organizations use it to assess your creditworthiness. They don’t know you as a person. They don’t know how good you are with money or how financially stable you are.

The days of going to the bank manager who has known your family for generations is long gone.

All lenders have to go on is your credit history and credit score.

It isn’t just lenders though. Try to get a mobile phone contract, they may check your score. Get utilities for your home, they may check your score. Rent a new house or apartment, your credit score will be checked.

Some employers even check credit scores when you apply for a job!

The practice of checking credit scores during job applications is more popular in the US than it is here but it is increasingly popular in Canada too.

Apply for insurance and your score will be checked. This is especially true for life insurance.

Higher score, lower rates

The higher your credit score, the lower risk you are perceived to be. As lending is all about balancing risk, this can have an impact on the interest rate you’ll pay.

If you have a good credit score, your credit history must also be good. Therefore, you must be good at handling debt and pay everyone on time. If this is all true, you pose minimal risk to lenders, hence the lower interest rate.

The opposite is also true. If you have a low credit score, you’re either new to borrowing, new to Canada or have had money troubles in the past. All of which can be perceived as higher risk by lenders, which will result in a higher interest rate on a car loan.

As lenders use interest to make a little profit and to insulate themselves from loss, the higher the debt risk you pose, the higher the interest rate you’ll pay.

It’s important to remember that you’re not defined by your credit score and neither should you let it define you. You should always try to keep it as high as possible as it can influence a lot of life but at the end of the day, it’s just a number.

When you’re ready for a car loan, get in touch with the Burford auto loan experts at Northway Ford for great deals on auto finance.

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