Does Leasing a Car Affect Your Credit Score?

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Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


, Contributing Writer - March 12, 2020

Deciding between leasing and an auto loan can depend on your financial situation and credit score. But if you’re looking to lease a car to improve your credit score, will it work for you? Let’s discuss.

How Leasing Can Improve Your Credit Score

If you’re looking to improve your credit score by leasing a car, good news: a lease can improve your credit score (if handled correctly, that is).

Auto loans and leasing are both installment loans – a type of loan with a set monthly payment over a set period of time. Installments loans can really help build a good credit score because they affect your credit in multiple ways. But you have to keep up on the monthly payments.

Here is how your FICO credit score is calculated:

  • 35% – Payment history
  • 30% – Amounts owed
  • 15% – Length of credit history
  • 10% – Credit mix
  • 10% – New credit

Payment history makes up 35% of your total FICO credit score, which is the biggest piece of the pie. A few years of good payment history could give you a nice boost to your credit score.

Although it can vary, a lease term is typically two to three years long. Good marks usually remain on your credit reports for up to 10 years, whereas missed or late payments can remain for seven to 10 years and negatively impact your score. So, even though your lease term is only a few years, how you handled the payments stays on your credit reports for quite a while.

Other Factors Leasing Affects

Leasing affects more than just your payment history. It also affects your amounts owed – the second largest piece of the credit score pie. When it comes to installment loans, the amounts owed factor considers how much you owe versus the original loan amount.

When you first start a lease, your credit score may drop a bit because the amount you owe across all lines of credit increases. Once you start making payments, your credit score increases with each on-time payment because you’re decreasing the amount you owe, and you’re establishing a good payment history.

When it comes to new credit and a lease, a credit inquiry (or hard pull), and a new account could slightly negatively affect your credit score. However, your score bounces back from this quickly with each on-time payment.

If you’re thinking about adding an installment loan to build your credit score and you’ve got bad credit, there are other routes you might be able to take.

Bad Credit and Certified Pre-Owned Cars

Leasing affects your credit score like an auto loan, because they’re both installment loans. However, if you’re thinking about using a lease to improve a bad credit score, you may not be able to get approved.

Leasing is typically offered to good credit borrowers, but leasing with bad credit is still possible – it’s just more difficult. If you’ve got bad credit and you’re looking for a newer, reliable vehicle, financing a certified pre-owned (CPO) vehicle could be an option for you.

Typically, a CPO car has only had one previous owner, and usually, these vehicles are just getting off of a lease. Since leased cars have mileage limits, and lease terms are usually only a few years long, you’re probably looking at a gently used vehicle with low miles.

A CPO car is also thoroughly inspected and is manufacturer certified – which is something that isn’t typically offered with other used vehicles or buy here pay here lots. Having bad credit doesn’t mean you have to buy a 15-year-old clunker. If you look into subprime lending, that is.

Where to Find Subprime Lending

Not all dealerships have special financing options, and finding one that does can be difficult if you don’t know where to start – but you can start with us at CarsDirect. We’re connected with dealers across the country that have the subprime lenders that may be able to help get you into your next vehicle.

Bad credit lenders understand that borrowers are more than just their credit score. To see if there’s a dealership in your area that can aid you in a car loan, fill out our free auto loan request form to get started.

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, Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


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