5 things you need to know about credit checks & car leasing
- Why a credit check is carried out when leasing a car
- Information on my credit report
- How to improve my credit score?
- Does leasing affect my credit score?
- Can I lease a car without a credit check?
Are you looking to lease your next vehicle but aren’t sure how or even if this will impact your credit score? Have you ever wondered why a Finance House will carry out a credit check before your finance is approved?
In this article, we take a look at why a credit check is carried out, the information that shows up in your credit report, the steps you can take to improve your credit score going forward, the impact that getting a vehicle lease will have on your score and whether you can lease a vehicle without having a credit check.
1. Why is a credit check carried out when leasing a car?
A credit check is the best and most reliable way for a Finance House to discover whether you will be able to make the monthly payments or not.
Your credit score will show the underwriters whether you’ll be able to make the payments, the higher your credit score the better.
Because you don’t own the car, the Finance House needs reassurance that you’re going to be able to meet the commitment of your monthly payments. The easiest way of determining your financial commitments is to take a look at your credit score.
As much as we are sure they would like to, finance houses can’t look at each case on an individual basis, so they do a quick credit check that is done by a computer.
2. What information is on my credit report?
Your credit report will actually tell you a number of things about your financial status as well as information about you. The things you will be able to see on your credit report include:
- Name and date of birth
- Electoral roll information
- Including information about past addresses
- List of credit accounts
- Including accounts that have been closed and settled in the past six years
- Information on credit limits and loan amounts on mortgages
- Credit cards and loans
- Details of your current account overdraft
- Information about application searches
- Any missed or late payments and how many
- Any financial links to other people
- If you have any joint credit applications
- Any history of debt problems including bankruptcies or CCJs.
A credit report will go back six years and will also include information showing whether your identity has been used for anything fraudulent.
As you can see, there’s quite a lot of information to be obtained from your credit report that the underwriters need to then go through.
3. How can I improve my credit score?
If you’re concerned that your credit score isn’t what you want it to be, there are some things that you can do to improve it going forward. These things include:
- Paying bills on time
- This one may seem obvious, but it’s actually the easiest way to improve your credit rating
- Keep your credit card balances low
- Having a high debt-to-credit ratio could be considered a sign that you’re facing financial difficulties
- Only open new credit accounts if you need them
- Having too many open credit accounts can be detrimental to your credit score
- Having too few accounts is also bad, so ensure you have a healthy mix of accounts
- Pay off any debt
- You can also improve your credit score by paying off any existing debt you may have.
Where can I check my credit score?
There are quite a few places online where you can check your credit score. At OSV, we use Experian most of the time, but there are others available.
Some websites will charge you for the service, however, the following will allow you to conduct a check without any fees:
4. Does leasing affect my credit score?
Any loan will have an effect on your credit score. From a credit standpoint, car leasing is exactly the same as getting a car loan.
Over a third (35%) of your credit score is based on your payment history, and car leasing is a payment. So, leasing does impact your credit score.
A further 25% of your credit score is the length of your credit history and the number of new accounts or enquiries you have.
Can car leasing positively affect my credit score?
It’s important to be aware that car leasing will likely have a negative effect on your credit score before it has a positive one, but this is the same as any loan you get on your credit account. However, as long as you stay on track with your payments and ensure that they are all made on time, it will improve.
If you don’t have much of a credit score, because, for example, you’ve not had time to build one, then leasing a car can be a great way to build your credit rating.
As a car lease is an instalment account it can 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 number (but not too many) of accounts open can improve 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.
Can 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 an instalment then this will have a negative effect on your credit score.
If you open a new account or request new credit then your credit score can go down, though this is dependent on how many applications you have made in the past six months.
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 is normally removed after 6 months. Though a car lease may have a negative impact initially, as long as you keep making your payments on time then your credit score will improve.
5. Can I lease a car without a credit check?
The short answer to this question is ‘no’.
If a vehicle broker or a leasing company claims you can lease a car through them without a credit check then we would advise you to be very wary.
There will be leasing companies and vehicle brokers that allow you to lease if you have a bad credit score, but they will still have to carry out a credit check.
We would never recommend you go through a leasing company that doesn’t carry out a credit check as it’s unlikely they will be reputable, and this means that if you experience any problems during the leasing process you won’t be protected by organisations such as the FCA and BVRLA.
If you don’t want a credit check because you have bad credit, then the best thing to do would be to find a reputable vehicle broker that has been set up specifically to help individuals or businesses with bad/poor credit.
Unfortunately, OSV has not been set up to aid those with bad/poor credit or CCJs and would therefore be unable to help you finance a vehicle.
So, as you can see, a credit check is a vital part of the leasing process. Not only does it provide the Finance House with information about your credit, but also reassurance that you are able to meet the monthly payments you are committing to when you lease a vehicle.
Leasing can also be a really good way to build your credit rating, especially if your credit record is new. Making regular monthly payments and having a different type of credit account can also contribute towards building your credit score.
If you want to check your credit score before you apply for a lease then there are multiple online resources available that are free to use.
A credit check isn’t something to fear, it’s simply a way for a Finance House to reassure themselves of your financial status.
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Can someone lease a car from the same dealer that they’ve had a car through the motability scheme from, if they have a poor credit rating?
Hi Cathy, This really does depend on the Dealer and their relationships with the finance house, however, we can help you. Feel free to give us a call on 01903 538835 and one of our vehicle specialists would be more than happy to chat you through your options.