If you are new to car leasing, you will probably have this question in your head that whether or not leasing a car help you build your credit score. Well, the answer is yes. Its effect on your credit report is similar to purchasing a leased vehicle. But how does it help build your score?
When you lease a car, the creditor assigns you some fixed monthly payments that you must pay over a set number of months. This account will appear as an installment account on your credit report. As long as you make timely payments, your auto lease is going to help you establish a credit history.
In case you didn’t know, around 35 percent of your credit score is based on the regularity and reliability of payments and this is exactly how the payments in leasing work. Another 25 percent of your score accounts for the length of your credit history and how many enquires or new debts you have accrued in a specific time period.
How does car leasing positively affect your credit score?
Truth be told—car leasing at first is going to have a negative impact on your credit score before improving it. But don’t worry, this is just a short-term thing and you will recover if you handle the loan the right way i.e. by making timely monthly payments. Leasing is a useful tool for those who don’t have a great credit history but still want to build a high score.
10 percent of your credit report is made up of the credit you have so if you have varied accounts open, this could really improve your score. For instance, a credit card can help. Since it is a revolving account, adding a credit card installment account will make a good mix.
Can the length of the lease affect the credit rating?
The length of time taken for you to pay off your car lease is not always directly relevant to the credit score. However, it may affect the rate of charge. The leasing company will report how much you owe them and since this could be a large figure, it will be taken as an installment account which you will have to pay over a period of time.
The more lease you pay off, the more it is going to improve your credit score. Sometimes it takes a long time to see an improvement but that’s because your lease is spread over a longer period of time. This does not directly impact your credit score; it only means you will see an improvement after a while. Hold on, this does not mean that just for the sake of seeing a difference in your credit score, you go for a shorter lease term. If you aren’t able to pay any month’s installment this could eventually hurt your credit score so don’t rush.
What if I am transferring my lease?
If you are transferring your car lease to someone else to come out of the lease early, it is obvious to question how this will affect your credit score. Since you will be finding someone else to take over your payment, the good news is this is not going to hit your credit score.
Speaking of finding someone to take over your car lease, QuitALease is a wonderful platform to begin your search with. It connects sellers of car lease with potential buyers who are willing to swap leases. You simply have to sign up at QuitALease and it’s going to be pretty easy to find buyers who will be interested to take over your car lease. The lease transferring process, however, is handled by the leasing company.
What if you are ending the lease?
When you make lease payments each month, your dealership reports those payments to the credit bureau. Let’s suppose you are planning to buy out the car lease, in that case it will be crucial to make the final payment of the lease on time. When you will return the leased car to the dealer early, it won’t damage your credit score, unless you fail to pay the amount that you owe to the lender.
If you are terminating the lease by turning in the car, this also won’t damage your credit score as long as you are paying the balance of the lease plus an early termination fee. Once you have paid off the lease in full, the lender will no longer update your credit report and your account will age. If your lender allows, then you can turn in the car and continue making the payments each month until your contract expires. It will save you from the trouble of making a large lump sum payment and your credit report will keep on getting updated until the end of the contract.
What if you opt for lease-roll over?
When you are trading in a vehicle and rolling the payments to a new lease, this will not hurt your credit score either. Experts, however, say it’s financially not a favorable option since you have to pay an early lease termination fee and you are still paying the old lease in future payments. This only makes sense if you are downgrading to a less expensive vehicle.
All this information leads to the conclusion that car leasing does impact your credit score and as long as you are making timely payments, it will keep improving.