Does leasing a car affect your credit score?
Any monthly repayments will affect your credit score. This includes your mobile phone contract, car insurance and credit cards. Car leasing will affect your credit score too, but this can be both beneficial and detrimental to you. There are a number of factors which can influence your credit score and our easy to read guide is here to explain it all to you.
In This Guide:
- The positives
- The negatives
- The length of your lease and the effect on your credit rating
- Your credit score
35% of your credit score is based solely on your payment history. Therefore, car leasing is a great opportunity for you to improve it. But you need to ensure that you are able to meet the payments each month. If you miss any, this can have a negative effect on your credit score.
Don’t let this put you off though, as if you are on time with your monthly repayments it will boost your credit score. Your payment history is a big indicator of whether or not a lender can trust you. So showing you are able to consistently repay on time shows them they can rely on you.
Another 10% of your credit score is based on the type of credit you use. If you have a number of different types of credit then this can have a positive effect on your credit score. A car lease is classed as an installment account, which is classed differently than a credit card, for example. Therefore, by simply opening a new type of credit you can improve your credit score.
Your payment history can have a negative effect as well as a positive effect. If you have been late with payments or have missed any payments any payments in the past, you’re credit score will be negatively affected.
25% of your credit score is based on both the length of your credit history and the number of different credit accounts you have open. When you first open a new car leasing agreement it could negatively impact your credit history. However, if you do not miss any payments it will only have a short term negative effect.
The length of your lease and the effect on your credit rating
The length of your lease will affect how quickly your credit rating improves. Generally, the longer your car lease then the slower your credit score will improve. However, if you choose to go for a short term but more expensive lease to improve your credit score, then any missed payment will have the opposite effect.
It is recommended by both creditors and car finance comparison sites to aim for an affordable monthly amount over a longer period of time. This way, you are able to pay off each monthly payment whilst building your payment history and credit score.
Your credit score
There are many ways your car lease deal can influence your credit score. It is important that you get yourself an affordable car lease and keep up with your monthly payments. As with any credit, it will have a positive effect in the long run as long if you are keeping up with the monthly payments.