There is no shortage of options to make when deciding what to drive. And once you have decided on a car, there is the question of whether to finance it and lease it. If you are worried about how this decision will factor into credit reports and scores, rest assured their effect is the same. This means leasing a car may help you build credit history as a loan will. If you have bad credit, you can have a hard time getting approved to lease a vehicle.
Does Leasing a Car Build the Credit score
When you lease a car, you will have fixed monthly payments for the lease agreement. As with an auto loan, the creditor will report monthly payments to the credit reporting agencies, and the account will show up on your credit report as an installment account. As long as your leasing company will report to all 3 credit bureaus Experian, Equifax, TransUnion, and all your payments are made in a timely manner, an auto lease may help to build your credit history. It may hurt your credit, however, if you miss a payment for 30 days or longer, or you default on the lease agreement altogether. So as with a car loan, it is essential to practice better credit habits, which also includes making on-time payments.
The length of the lease and the effect on the credit rating
The lease length will affect how fast the credit rating improves. The longer your car lease then the slower the credit score will improve. However, if you go for a short-term but expensive lease to improve the credit score, then any missed payment will have the opposite impact. It’s suggested by both creditors and car finance comparison sites to aim for an affordable monthly amount over a long period. This way, you’re capable of paying every monthly payment whilst building your payment history as well as credit score.
The pros of Leasing a Car
35 percent of your credit score is based solely on payment history. Therefore, car leasing is a good opportunity for you to improve it. But you should make sure that you’re capable of meeting the payments every month. If you miss any, this may have a negative impact on your credit score. Do not permit this to put you off though, as if you’re on time with monthly repayments it’ll boost your credit score. Your payment history is an indicator of whether or not a lender can trust you. So, showing you’re capable of consistently repay on time shows them they can rely on you. Another 10 percent of your credit score is based on the credit type you use. If you have different types of credit then this may have a positive impact on your credit score. A car lease is classed as an installment account, which is classed differently than a credit card, for instance. Therefore, by opening a new type of credit you can improve the credit score.
The cons of Leasing a Car
Your payment history may have a negative impact and a positive impact. If you are late with payments or have missed any payments in the past then your credit score will be negatively affected. 25 percent of your credit score is based on both your credit history length and the different credit accounts you have open. When you first open a new car leasing agreement it can negatively affect the credit history. However, if you don’t miss any payments it’ll have a short-term negative impact.
Can you lease if you have a bad credit score?
It depends on how bad the credit score is and whether you have missed payments before, but in most cases, you need to be capable of, with a less than best score. There are credit companies or lease companies that specialize in people who do not have the best score, so do not lose hope if you are rejected by a dealer and broker. You will be checked for your credit for a lease, so expect that you will be asked about your earnings and, outgoings. Once you have been accepted, it is possible that having a bad credit score will push up monthly payments because you are high risk. It can seem strange, you will be charged more if the leasing company is unsure if you can afford it, but that’s one thing you will have to bear in mind.
Why is a credit check carried out to lease a car?
A credit check is carried out so the leasing company knows you can make the repayments. It is an easy way for them to determine whether you’ll make the payments. Your credit score covers the past 6 years and contains a lot of info about your financial history, including how many accounts you possess, overdrafts, electoral roll info, and whether your details are fraudulently used. While they will take all of the above into consideration, lenders will scrutinize any missed or late payments and whether your info matches what is on the credit report.