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Leasing a car is the same as any repayment finance agreement, which means that it will be shown on your credit score. This means it can either have a positive or a negative effect on the score.

While at first, this may seem like a bad thing, it actually doesn’t have to be. Leasing a car is a great way of improving and building up your credit score.

In this article, we look at everything you need to know about building your credit score by leasing a car.

How does leasing affect credit score?

Leasing affects credit score the same way every loan does. From a credit standpoint, car leasing is the same as a car loan.

35% of your credit score is based on your payment history. And car leasing is just that, payments. So, leasing does have quite an impact on your credit score.

Another 25% of your credit score is the length of your credit history and the amount of new accounts or inquiries you have. Leasing can affect this too, but we’ll go into that in a little bit.

businessman in a suit looking at his credit score with a cup of coffee

How does car leasing positively affect my credit score?

It’s important to note here that car leasing will probably negatively affect your credit score before it has a positive effect. This is the same with any loan, regardless of whether it is a lease or not. But, as long as you stay on track, it can improve it.

When you make all your lease payments on time, which we’re sure you will, your credit score will improve. If you don’t have much of a credit score, if you are a young person for example, then leasing a car can be a great way of building your credit score.

building your credit score with a lease

The fact that it’s a lease scheme won’t have any additional impact on your credit score. It’s the same as any repayment scheme, like a bank loan for example.

Also, a car lease is an instalment account. This means that it might improve your credit score simply by appearing on your credit report. 10% of your credit score is the type of credit you use. So having a varied amount of accounts open improves your credit score.

While car leases are instalment accounts, credit cards are revolving accounts. So, if the only debt you have is credit card debt, adding an instalment account will improve your credit mix. This, in turn, will improve your credit history.

Understand everything you need to know in regards to Credit Checks

How does car leasing negatively affect my credit score?

There is a chance that a car lease will have a negative impact on your credit score.

As with any sort of repayment, if you miss a payment then this will negatively affect your credit score.

As I mentioned earlier, 25% of your credit score is down to the length of your credit history, and the amount of new inquiries you have. Unfortunately, both these things could be affected by a car lease.

If you open a new account or request new credit then your credit score can go down. This is dependent on how many applications you have made in the past six months. If you have only made one or two, then you shouldn’t see much of a change. Any more than that, however, and there could be a chance that your credit score will go down.

New enquiries will stay on your credit file for two years. However, the good news is that any negative impact on your score from said searches are normally removed after 6 months. So, while it may have a negative impact initially, as long as you keep making your payments on time then your credit score will improve.

credit report with graphs and charts and a magnifying glass and glasses

Does the length of my lease affect my credit rating?

Not necessarily, no.

The length of time you have your lease won’t directly affect your credit rating. It may, however, affect the rate of change. That is, how quickly your credit score improves.

Typically, your creditor will report how much you owe the leasing company. This could be quite a considerable number. But, because your lease contract is considered an instalment account your credit score will take into account that you’re going to be paying it off for a set period of time.

A man looking at his credit score

The more you pay off of your car lease, the more your credit score will improve. If you’re paying it off over a longer period of time, then your credit score will improve slower than if you were paying it off quickly. So, while the length of the contract does not have a direct impact, it may affect how quickly your credit score improves.

However, this does not mean you should go for a shorter contract with a higher monthly payment. It’s better for you to improve your credit score slowly than trying to improve it quickly and missing a payment. We recommend going for a more affordable amount over a longer period of time.

Can I lease a car if I have bad credit?

As I mentioned, car leasing is a great way of building and improving your credit score. But what happens if you can’t get a car lease to improve your credit in the first place?

There is a chance that if you have a bad credit rating you will be able to lease a car. However, it depends on your individual situation and therefore we can’t guarantee that you will be approved.

There are some dealers and brokers that work with specialist finance houses who exclusively deal with those with bad credit scores. But, it should be important to note that these companies will still need to know that you can afford to make the monthly payments and will require a lot of information to make sure this is possible.

Why can’t I get car finance

If you have a CCJ that is about to fall off your credit rating in say, six months or so, then you might want to look at short term rental. This is where you have a car for no more than a year, paying monthly payments the same way as a lease. By the time this is up, the CCJ would have fallen off and you would have already started to improve your credit rating. For more information on leasing with bad credit, read our article here.

So, leasing is a great way to build your credit rating. Making the regular monthly payments and having a different type of account will improve your credit rating. You should be aware, though, that if you do miss a payment then this will negatively affect your credit rating.

Now we know car leasing can improve your credit score, let's take a look at the business car leasing credit requirements

Alfie Willis

Vehicle Specialist at OSV Ltd
Alfie is a recent starter at OSV and really enjoys making sure the customer is completely satisfied in the care they receive.

He enjoys going to the gym, socialising, eating out and playing playstation.
Alfie Willis

Latest posts by Alfie Willis (see all)

  • 19th October 2016

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