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, a car lease 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 a bit like a car loan.
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 report and credit history.
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 history 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 or credit history, 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 report), 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 car 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, so long as you meet your lease payments.
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.
Why is Credit Score Important?
Your credit score is important because it is a way for lenders to judge your financial history. If you have a good credit score, then this means that you have a good history of making payments on time, and lenders will be more likely to offer you loans and lines of credit.
Conversely, if you have a bad credit score and credit report, then this means that you have a history of making late lease payments or defaulting on loans. Lenders will be less likely to offer you loans if they think that there is a risk that you will not be able to repay them.
A bad credit score can also impact your ability to lease a car, as we have discussed. So, it is important to try and improve your credit score before taking out a lease.
There are a few things that you can do to improve your credit report. First, you should make sure that you are registered on the electoral roll. Second, you should make all of your payments on time and try to reduce your overall level of debt.
Third, you should avoid taking out new lines of credit, as this can be seen as a sign of financial distress. And finally, you should check your credit report regularly to make sure that there are no errors that could be adversely affecting your score.
If you follow these tips, then you should gradually see your credit score start to improve. This will make it easier for you to get approved for loans and lines of credit in the future, as well as make it more likely that you will be approved for a lease.
Should You Lease A Car To Build Credit?
There are two sides to every story, and the same is true for leasing a car to build credit. So, is this a good idea? Should you lease a car to build credit?
On one hand, if you make all of your monthly payments on time, then this will help build your credit rating.
However, on the other hand, if you default on any payments, or make late payments, then this could have a huge negative impact on your credit rating. So, it is important that you think carefully before taking out a lease to build your credit.
Often, the best way to improve your credit rating is to get a credit card and use this sensibly. By using a credit card, and making all payments on time, you will gradually improve your credit rating.
If you decide to take out a lease, then you need to be sure that you will be able to make all of your payments on time, as one missed payment could have a catastrophic effect on your credit rating.
So, in conclusion, yes you can lease a car to build credit, but you need to be very careful about doing this, as one missed payment could ruin all of your hard work.
Things to Consider When Leasing a Vehicle
There are a few things that you should consider before leasing a vehicle. First and foremost amongst these is your credit score. As we have discussed, if you have bad credit, then it will be very difficult to be approved for a lease.
If you have bad credit, then you might need to put down a larger deposit/down payment, and you will probably need to find a cosigner for your lease.
Another thing to consider is the length of the lease. Most leases are between 2-4 years. So, you need to be sure that you will be able to keep up with the payments for the duration of the lease. If you default on your payments, then this could have a huge negative impact on your credit rating.
It is also important to consider the mileage allowance of your lease. Most leases come with a mileage limit of between 10,000-15,000 miles per year. If you go over this limit, then you will be charged a fee for each additional mile. So, it is important to consider how much you are likely to drive before taking out a lease.
Finally, you need to think about the type of vehicle that you want to lease. Often, luxury vehicles will be more expensive to lease than more modest cars. So, it is important to choose a vehicle that is within your budget.
Leasing a car can be a great way to build your credit rating, but it is important to consider all of the factors before making a decision. If you are unsure, then it is always best to speak to a financial advisor who will be able to offer impartial advice.
Leasing Vs Buying a Car – Which is Best for You?
The choice between leasing and buying a car is a difficult one, and there are pros and cons to both options.
If you decide to buy a car, then you will own the vehicle outright at the end of the term. However, you will need to make a large down payment, and your monthly payments will be higher than if you were to lease.
If you decide to lease a car, then you will have lower monthly payments. However, at the end of the lease period, you will not own the vehicle, and you will need to either return it or buy it from the leasing company.
There is no right or wrong answer, and it ultimately comes down to personal preference. You need to weigh up the pros and cons of each option and decide which is best for you.
If you are unsure, then it is always best to speak to a financial advisor who will be able to offer impartial advice.
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.
However, it is important to remember that a lease is not a long-term solution. At the end of your lease period, you will still need to find a way to finance or purchase your vehicle outright.
If you want to own your car, and improve your credit score at the same time, then you might be better off taking out a finance plan instead of a lease. This way, you can make regular payments to improve your credit score and, at the end of the term, you will own your car outright.
It’s important to determine your individual needs before committing to a lease. Consider all your options and make the best decision for you.