When you decide to buy a car, there is a seemingly endless list of decisions that you need to make.
From the decision between brand new and second hand, to deciding what make and model, these questions are never-ending.
Then once you finally decide on a car, you’ve then got to consider whether you want to pay for it outright, or if you are going to get a finance plan. Alternatively, you might choose to lease your car.
If you are someone who is focused on improving your credit rating, then you might be wondering if leasing a car could help improve this.
The world of credit is often very confusing to understand, and because of this it is vital that you only make good decisions if you want to build your credit score.
In this guide, we’ll be taking a look at whether, or not, leasing a car can help build credit.
Does Leasing A Car Build Credit?
In theory, yes, leasing a car does build credit. However, if you want to build your credit score using a car lease, then you will need to be careful when doing this.
A lease, or any credit agreement for that matter, will only impact your credit rating if you take out the agreement with a company that actively reports to credit bureaus.
In particular, you want to take out a lease with a company that will report back to TransUnion, Equifax, and, most importantly, Experian.
If you take out a lease with a company that does not report to these agencies, then any good behavior that you complete will have zero effect on your credit rating.
After all, credit bureaus cannot update your credit score if they do not know what actions you are completing.
Additionally, if you are looking to take out a lease to build your credit rating, then you will need to handle this lease well. By this, we mean that you will need to complete all payments on time, and never default on any of these payments.
If you were to default on any of these payments, then this could have a negative impact on your credit score, which is the opposite of what you are looking to achieve.
How Does Leasing A Car Build Credit?
As we have said, the world of credit ratings is often a very confusing place. In this confusing world, you can actually improve your credit rating by taking out more agreements.
Some people have poor credit ratings simply because they do not use credit to pay for anything, while some people with multiple credit agreements will have excellent ratings.
Essentially, to have a good credit rating you have to have credit agreements, and you need to pay your monthly payments on time.
When you take out a lease on a car, you will be making an agreement to pay monthly payments every month for a fixed term.
If you take out this lease with a company that reports to credit bureaus, then any monthly payments that you make on time will be viewed favorably when it comes to your credit rating.
So, if you take out an additional credit agreement in the form of a car lease, and make all of your payments on time, then this will help build your credit rating.
But, if you fail to make payments on time, or default on your list, then this will have a huge negative impact on your credit rating.
Can You Lease A Car With Bad Credit?
Now, if you are thinking about building your credit rating, then this might be because your credit rating isn’t the best. If you are starting out with a bad credit score, then this could actually impact your ability to lease a car. So, can you lease a car with bad credit?
Yes, you can lease a car with bad credit. But, this will be very difficult. If you have a bad credit rating to begin with, then the chances of your credit application being accepted are slim.
Often, if you are starting out with a bad credit rating, then you will need to jump through hoops to get your application accepted.
These hoops might include things such as a large down payment/deposit (much larger than that expected of someone with a good credit score), and the requirement of a cosigner on your lease.
But, if you have your heart set on leasing a car, this will usually be achievable. Remember that there are lots and lots of different credit agencies which will offer car leases.
So, even if you get rejected by a couple of agencies, this doesn’t mean that you will be unable to get a lease. You will just have to work a lot harder if you want to be accepted.
Things To Consider
Before you take out a car on a lease, you might want to consider if this is the best option for you. Leases aren’t for everyone, so you shouldn’t just dive straight into one.
A lot of people choose to take out a car lease simply because it will have a good effect on your credit score if you make your payments on time. But, this isn’t the only route available if you want to achieve this.
When you take out a leasing plan on a car, you will not own the car at the end of your term. Instead, you are essentially hiring the car for that period.
If you want to own your car, and work on your credit rating at the same time, then it would be much more beneficial if you were to take out a finance plan for your car. This might be more difficult to achieve if you are starting out with a bad credit score, but if you are able to do this, then it might be the better option.
In short, yes, leasing a car can help build your credit score.
As long as you take out a lease with a company that reports to credit bureaus and make all of your payments on time, then you will be actively improving your credit score while paying the lease on your vehicle.