Your credit score can be a potential obstacle when applying to lease a car, as a low score can make it more difficult to be accepted. But what happens if you have no score?
Having no credit history is more common than you might think. It doesn’t mean that you have bad credit, it’s that you don’t have a history of credit, and it can make obtaining a car lease tricky. However, it’s not impossible, and there are things you can do to improve your chances.
What is credit?
Credit is when you borrow money, goods or even services with the agreement that you’ll pay for them later down the line.
Creditors or lenders – those who lend the money or services – make a decision on whether they think you can and will repay based on your history of lending. They mainly look at two things; your credit history and your credit score – a number assigned to you to reflect how creditworthy you are.
If you have a good record of borrowing and repayments in the past, you’ll likely have ‘good credit’. Good credit means you’re more likely to be accepted for loans and finance in the future, as well as have access to lower interest rates or better deals because you’re deemed lower risk.
Bad or poor credit suggests to the lenders the exact opposite – it implies that you can’t repay your debts and are a risk to lend money to.
Why do I have no credit score?
There are many reasons for not having a credit history and therefore no credit score.
Your credit report is made up of information that is sent from credit providers to a credit reference agency.
If you’ve never used credit, nothing will have been sent to them and your file will be empty. With no history to access, there’s nothing to base a score on.
One reason for this could be that you’re too young. For almost all lenders, the minimum age at which you can get credit is 18. Of course, if you’ve just turned 18 or it’s only been a year or so, you’ll probably not have had the time to build up any kind of credit history.
Another reason could be if you’ve recently moved to the UK. Credit reports are not transferred from one country to another, so even if you have an excellent history of managing credit in another country, it won’t show on your credit report.
Finally, it may just be because you’ve never used credit. Perhaps you’ve never needed to or maybe everything has been in someone else’s name in the past, so will not show on your credit file.
How does a credit score help you lease a car?
When you apply to lease a car, the lender will look to see if you fulfil the eligibility criteria. One of these factors is your credit history and score.
The credit check will show them how you’ve managed payments in the past to give them a good idea of what you’re like as a borrower.
If you have a good credit history and score, the creditor will be more likely to agree to your application and even give you more favourable terms. If you have poor credit, the chance of being accepted is lowered.
If you don’t have a credit history at all or a very limited history, the creditors will have no way of knowing whether you can manage your finances, and with no point of reference, it’s more of a risk for them to accept your application.
Is there any other way I can finance a car?
It isn’t entirely impossible to lease a car if you have no credit at all. However, it does mean you may find it harder or only be able to access high-interest rate deals. But there could be other options available.
Securing a lease is quite difficult, but there are other forms of car finance where you might find it easier to get approved.
Even though you have no credit history, some finance companies may be willing to approve you for a hire purchase agreement. This is a type of car finance where the total cost of the vehicle, plus interest, is split evenly over your term – making up your monthly repayments. And, at the end of the agreement, the vehicle belongs to you.
As hire purchase is a secured loan, if you can’t keep up with your repayments, the lenders can repossess your vehicle. So there’s a lower risk to the finance company and often a better chance of your application being accepted.
Personal contract purchase (PCP)
PCP works like a lease in all ways until the end of the contract when you have the option to either return the car or buy it with a final lump sum payment.
You may be more likely to be accepted for PCP finance with no credit history, as it’s a full finance agreement and the lenders can adjust the interest rates to match the risk of lending to you.
Guarantor finance or leasing
Using a guarantor to support your application will help your chances of being accepted. A guarantor is someone who’ll agree to take on the responsibility of making payments for the vehicle should you be unable to.
Usually a family member or close friend, your guarantor will need to have a good credit rating and be aware that if they also miss payments, it’ll affect their credit rating too.
How do I build my credit score?
The good news is, if you have no credit, you’re starting with a clean slate and can begin to build up your credit history.
As a first step, make sure you’re registered on the electoral roll, as this helps creditors confirm your identity and address, as well as having an effect on your credit score.
Open a bank account and manage it well. This shows financial responsibility and will help build a positive credit history. If possible, choose one with an overdraft facility – as this will be classed as credit. However, make sure you stay well below the limit and, if you use it, pay it off regularly.
Once you’ve had your bank account open for a while, you may find it possible to get a credit card with the same bank. Use it regularly, but pay it off on time and in full each month to build up your credit history and improve your score.
Don’t forget, mobile phone contracts, utilities and even some types of insurance can class as credit, so if they’re not in your name but belong to you, see if you can transfer them to demonstrate you can pay your bills on time.
Building up a credit history does take time, but if you’re consistent, you should see your score start to grow.
Should I apply now or wait to build my score?
Ideally, it’s best to wait until you’ve built up a credit score before you apply for a car lease.
However, here at Hippo Leasing, we understand that sometimes you need access to a car and don’t have the luxury of time to build your score. That’s why we have several solutions in place to help.
Firstly, when you make an application with us, we use a soft credit check to see if we can find you a lender. That means you can learn if you’ll be approved for car leasing or finance without harming your credit file.
As well, we also work with a panel of trusted bad credit lenders, which help those with poor or no credit get behind the wheel of the car they want.
So, if you’re worried about having no credit and want to see if you’ll be approved, you can do so without worry by clicking Apply Now today.