How Does a Car Lease Affect Your Credit?

Those who purchase cars with an auto loan can affect their credit history significantly with the actions they take surrounding their loan. Individuals who lease cars can also affect their credit histories. The way you make your lease payments can help or hurt your credit score and your chances of getting future credit.

Same as Buying

When you lease a car, you may not think that it is affecting your credit as much because you are not actually borrowing the money to buy one through an auto loan. In reality, getting a lease is basically the same as buying a car when it comes to your credit report. You are opening a new account and you are on the hook for the total amount of your lease. Lenders will count this as a debt when evaluating you for credit.

On Time Payments

When you have a car lease, you also have the ability to significantly improve your credit score. Most leases last for three years or more. If you can make your payment on time every month, this will boost your credit score over that time. Your payment history is one of the most important factors when calculating your credit score. If you can always make your payment on time, this will help your score and make you a more attractive borrower in the future.

Early Termination

After taking out an auto lease, sometimes you have to terminate the lease early. When this happens, it can have serious negative repercussions for your credit. This is basically the same as defaulting on a loan. The account will show up on your credit report after you have already turned the car in to the dealer. This can seriously hurt your chances of getting credit in the future. Car dealers will also be skeptical of working with you again unless you pay a high interest rate.

Making a Deal

If you need to get out of your lease, there are ways to approach it that will not hurt your credit. In this case, you should talk to the dealer about making a deal. You could pay a buy-out fee to the dealer and then the dealer will let you out of your lease. This will not be reported to the credit bureaus as if you defaulted on an auto loan and the dealer had to repossess your car.