If you’re thinking about getting a car on finance, it’s natural to wonder how it might affect your credit score. After all, your score plays a big role in whether lenders say “yes” to your application — and at what rate.
The short answer is: yes, car finance can affect your credit score. But whether it helps or hurts depends on how you manage the agreement.
A well-managed car finance agreement can actually boost your score over time. That’s because lenders want to see that you can borrow responsibly and pay money back on time. Each monthly payment you make in full and on schedule shows you’re reliable with credit. So, does car finance improve credit score? It can — as long as you stay on top of your repayments. You can keep track of how your borrowing decisions are impacting your score by checking your free credit report with ClearScore.
While car finance can be positive, there are times when it might have a negative impact:
Hard searches – When you apply, lenders run a “hard search” on your credit file, which can temporarily lower your score.
New debt – Taking on extra borrowing increases your total debt, which may reduce your score in the short term.
Missed or late payments – This is the biggest risk. If you don’t keep up with repayments, your score will drop and it could stay on your record for up to six years.
The most common types of car finance are:
Hire purchase (HP) – You pay monthly until the full value of the car is covered. Once the last payment is made, the car is yours.
Personal contract purchase (PCP) – You make monthly payments but don’t own the car outright unless you pay a final lump sum at the end.
Personal loan – You borrow a fixed amount and own the car from day one, then pay the loan back over time.
Each option has pros and cons for your credit score, but the golden rule is the same: make your payments on time. Tips to protect your credit score with car finance
Always make your repayments in full and on time.
Set up a direct debit so you don’t miss a payment.
Avoid taking on too much debt at once.
Keep an eye on your credit utilisation — the amount of credit you’re using compared to what’s available.
If you’re ready to explore car finance, you don’t need to dive in blind. With ClearScore, you can:
Compare tailored car finance offers without harming your score.
See your eligibility chances before you apply.
Understand how different borrowing choices might affect your credit score in the long run.
It can — if managed well. With ClearScore, you’ll always have the tools and insights to stay in control of your borrowing and build a stronger financial future.