Not everybody owns their own home. In fact, many people, particularly those in the 20 to 35-year-old category, are putting off buying or completely rejecting the idea of home ownership in favour of renting and having the freedom to travel and live where they like. There is also a trend for younger adults to live with their parents or put off buying a home in favour of paying off things like student loans and avoiding all the extra costs that come with your own home.
This is all very well, but what impact does being a tenant or living with your parents have on your ability to get car finance?
Does being a tenant affect your credit score?
No. With a few exceptions, mentioned below, being a tenant will not affect or alter your credit score. Many years ago, there was a credit concept of checking an addresses credit history and that of all the people living at that address but things are different now and the three main credit bureaus, Equifax, Experian and TransUnion (formerly know as Callcredit) follow you as an individual and your ability to pay bills rather than the address having any impact on your credit score.
Credit bureaus value stability!
Credit bureaus do however value stability and all the credit agencies will use your address to identify who you are and to track your credit history. If their systems recognise that you have lived at multiple addresses within a short period of time then this could signal that you are a higher risk than someone who is more settled at a few addresses over a longer period. One of the concerns could be that you are moving frequently because you have not or cannot pay your rent so this could, in turn, affect your ability to be approved or increase the interest rate (APR) at which you can borrow money.
Tips for tenants
So what can you do to improve your chances of getting credit to buy a car and keep the rate of borrowing down? Firstly, it’s important to make sure that you are registered on the electoral roll at your current address as almost all lenders will look for you to have a permanent, provable address to grant credit. Please consider that this often does not reflect on the electoral roll straight away so make sure you leave any credit applications for a month or so prior to applying for credit.
Old tenancy agreements are also an important factor in that they should be honoured in order to prevent any negative effect on your credit file. If a previous landlord applies to the county court for unpaid rent and is successful in their claim, this is likely to have a severe, negative effect on your credit rating or at the very least make your rate of borrowing rise considerably.
Moving frequently can also have other, unexpected and potentially negative effects.
The fact is that it is expensive to move. The extra costs of moving can sometimes put a strain on an individuals ability to pay other bills. Every time you apply for a new tenancy it is likely that the landlord or their agency will do a “hard” credit check. One or two hard credit checks won’t make much of a difference but if you do a number within a short period and then also add in additional ones like for a new mobile phone – this can also have a negative effect on your credit rating.
When you move home, then you need to advise your lenders of this fact. If you change your address frequently then there is an increased chance that your lenders will send your bills to the wrong address. If these bills don’t get to you and you miss payments then you are also likely to negatively impact your credit rating. A good idea is to ensure that your regular bills are paid by direct debit so, if you move, then payments are still made.
Another idea is to make sure you are registered with a free credit report provider like Clearscore who can alert you if anything changes on your credit score and this also makes checking your credit report easy and quick.
Does living with your parents affect your credit score?
No. With more and more young adults (and even more mature ones) living with their parents in the UK this is becoming a more frequent question. The truth is that the Credit agencies follow your individual score.
Advantages to living with your parents:
There can actually be some advantages to still living with your parents. You are likely to have a permanent address for some time – indicating stability to the credit bureaus. You are likely to have more disposable income. Even if you pay rent to your parents you will be avoiding many incidental bills that normal householders get like council tax, home insurance, house repair bills etc. This means that you have more disposable income that you otherwise would have which means in turn that you are more likely to be able to afford more consumer goods and more likely to be able to pay the monthly rental or lease on your car.
Living at home also means that all your correspondence will go to one address so you are much less likely to miss a bill. While it has no impact on your credit rating, there is also the security of many being able to fall back on their parents to help them through a “rough patch” so they can keep paying their bills as, of course, if you miss your bill payments – this will have an effect on your future credit rating.
Credit tips for those living with parents
As with those who are tenants, it’s very important to be registered on the electoral roll if you are living with your parents. This allows the credit reference agencies to see that you have a permanent address and tie your various bills to you as an individual so that they can generate an accurate credit score and will improve your score.
Have some existing credit.
If you have a high disposable income, it’s tempting to pay everything using cash. While this is by no means a bad habit, you should bear in mind that when it comes to making a big purchase like a car, your lender will engage with one of the big three credit agencies to look at your credit history. If you have no, or very little, history of using credit then it’s hard for them to see your ability and your track record of making payments and paying on time. It’s a good idea to have some credit accounts which you regularly pay off.
For example, if you have a pay monthly mobile bill with no missed payments, this will help and if you have a credit card or personal loan that you use and regularly pay off then this is also a good indicator of your ability and desire to pay your bills on time which in turn will improve your credit score.
One caution relating to credit cards is that a credit bureau wants to see that you don’t max out on your credit limit, so when using your card, try to make sure that you don’t use more than 30% of the limit. This relates to your “credit utilisation” and helps the credit agency and the lender to see that you are a “responsible” borrower.
As with any big purchase or commitment like getting a new car, it’s tempting to go for the top end on what you can afford. While leasing and the rise in popularity of Personal Contract Purchase (PCP) as a finance mechanism has meant that we can often go for cars what we thought were out of our league, there are also other expenses to consider when getting your new car such as car insurance (often incredibly expensive for your adults), servicing (if you don’t have an inbuilt servicing contract) and general wear and tear costs such as for tyres. Sometimes it’s better to go for a slightly less desirable car or opt for a nearly new version rather than incur an expense which puts your budget under huge stress.
The good news is that Hippo Motor Finance has a huge panel of lenders and a massive selection of new, nearly new and used cars.
We very much welcome tenants and those living at home to apply for credit and, as a one-stop shop, we not only help you to get credit but we have pretty much every type of new car available on all types of finance ( including PCP, Personal Contract Hire and Hire Purchase).
A very high proportion of those applying for credit through Hippo are tenants and we facilitate finance for thousands of tenants every year plus our lenders do not discriminate against those living with their parents so you can rest assured that you are with the right company to look after all of your finance and vehicle needs. Simply call us on 01254 956777 to speak with one of our helpful, friendly and knowledgeable account managers or email us at [email protected] today.
