MONEY CLINIC | How do I buy a car when my credit score is low?

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A Fin24 reader seeks the advice of an expert on how to buy a car with a low credit score.

He writes:

I have just recently started working. I've got a well-aying permanent job but I can't buy a car because my credit score is low (543). I made a few applications for purchasing a car and that had a negative effect on my credit score. 

How do I buy a car with a low credit score? 

David Bester, Director at responds: 

Unfortunately, to get vehicle finance you will need to have a good credit score.

Let me explain why it's so important for the lender (vehicle finance company). Your credit score is a three-digit number that calculates the likelihood of you repaying your loans. If your credit score is bad then it means that the risk is high for vehicle finance companies to offer the loan. 

Think about it this way - if a friend who continuously lends money from others and never pays it back asks you for a loan, then you will most probably not give the friend the loan. The goes for vehicle finance and that's why it's so important.

So you have two options now:

1. You can look at a "Rent to own" option. This basically means that you rent the vehicle at a specific price and at the end of the term, you can decide if you want to keep the car or go for a different option. A simple Google search will return a few companies in South Africa offering this option.

2. Fix your credit score first and then apply for vehicle finance. The quickest ways to improve your credit score is to fix errors on your reports, pay up outstanding accounts, fix your credit utilisation, build up a track record and don't apply for too much finance in a short period of time. It sounds pretty complex and overwhelming but we offer lots of free webinars on each section at My Credit Status.

I see you mention that you made a few inquiries for vehicle finance which negatively impacted your score. Your hard inquiries account for about 10% of your total score so the biggest problem on your credit score lies with the repayment history, age and utilisation. Gradually your score will increase again from the effects of the inquiries.

Questions may be edited for brevity and clarity.

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