Does leasing a car build credit?
Highlights
- Getting a lease and managing it
responsibly can help improve your credit score over time.
- Leasing a car may negatively affect your
credit at first, but it can ultimately be an opportunity to build your
credit.
- Financing a vehicle can affect your credit
both positively and negatively, but the choice between financing and
leasing is up to you.
Leasing a car can have
both positive and negative effects on your credit. The initial credit inquiry
might slightly hurt your credit score, but don't hit the panic button on your
car key fob. In this article, we'll discuss how leasing a car affects your credit.
How does leasing a
car affect your credit?
Leasing a car has its
pros and cons, but it can help you improve your credit over time in several
ways. Here's what you can expect.
The initial credit
inquiry
When you decide to
rent a car, the rental company or dealer will typically perform a hard inquiry on your credit report. You approve this when
you apply for the rental. The hard inquiry that is performed as part of the
review of your application will give potential lenders access to your credit
report. Information on it, such as payment history and total outstanding debt,
will be reviewed. This review itself does not affect your credit, but it could
impact the approval and terms of your lease, including the interest rate.
The impact of a hard
credit inquiry is usually a small, temporary decrease in your credit score.
Your score should recover over time if you practice healthy financial habits.
If you are looking for a rental agreement and have multiple credit inquiries, you
may be concerned about a major impact on your score. However, this won't be the
case if they are made within a 14-day period because most credit scoring models
will count related inquiries as one.
Expanding your
credit mix
One aspect of your
credit that influences your credit score is your credit mix . Everyone's credit mix is different—it may
include student loans, a mortgage, credit cards, and so on. A car lease can
diversify the mix of credit accounts that show up on your credit report. A
variety in your credit mix can have a positive impact on your credit score and
future credit applications.
Possible negative
impact
Once you get a lease,
your account and monthly payments will be reported to the credit bureaus.
Failing to make rent payments can result in a negative entry on your credit
report, which will cause your credit score to drop. Conversely, consistently
making payments on due dates can have a positive impact on your credit score
over time.
What credit score
do you need to lease a car?
The specific credit
score required to rent a car can vary depending on the rental company, the type
of vehicle, and even the economic conditions at the time of application. In
general, the terms of a rental agreement can vary depending on your credit score and the information in your credit report.
It’s important to note
that the VantageScore
® and FICO ® credit score ranges are general
guidelines for what is considered “good” and “bad” credit. Lenders have their
own credit score criteria and thresholds, and credit evaluations typically
consider more than just scores—overall credit history, debt-to-income ratio,
etc.
Leasing or buying a
car: Which has a bigger impact on your credit score?
Leasing and purchasing
a car can have similar effects on your credit score, both at the time of
application and over the term of your lease or loan. Applications for a vehicle
require a thorough investigation whether you want to lease or buy. The effects
of a thorough inquiry on your credit score in both cases can be similar.
Additionally, soon after you sign a lease or loan, the new line of credit can
expand your credit mix and, in turn, improve your credit score.
Whether you rent or
buy, you agree to make monthly payments over a period of time. Paying in full
and on time is important for your credit, regardless of whether you rent or
finance. That's because positive and negative payment history impacts your
credit score accordingly.
Improve your credit
to be eligible for a lease
Improving your credit can take some time, so it may be essential to
begin the process well before you plan to lease a car. Be patient and
persistent in your efforts and monitor your progress by checking your credit
score regularly. As your credit score improves, you could be in a better
position to qualify for a car lease with more favorable terms.
It's not always easy
to see how everyday actions affect your credit, but there are tools that can
help. Chase Credit Journey ® is a free tool that lets you monitor your
credit for free and set up a personalized score improvement plan provided by
Experian TM . That plan could provide actionable steps to help you
improve your score. Some users are able to improve their score by more than 20
points. Footnote 1 Opens overlay
In conclusion
A lease application
involves a hard inquiry, which could result in a brief dip in your credit
score. However, getting approved for a lease presents opportunities to build
credit over time. For one, you'll have the chance to make monthly payments on
time. This can give you a positive payment history and influence your credit
score accordingly. Leasing the vehicle itself could also add variety to your
credit mix, another important factor in improving your credit score.
