How Leasing a Car Can Affect Your Credit Score

Leasing a car involves a credit check and a new debt obligation, much like a loan. This process directly impacts your credit score in several distinct stages, from application to final payment.

1. The Hard Inquiry: When you apply for a lease, the lender performs a hard inquiry on your credit report. This can cause a small, temporary dip in your score, but its impact typically lessens over a few months.
2. A New Installment Account: Once approved, the lease is added to your credit report as a new installment account. This increases your total debt and can lower the average age of your credit history, both of which are scoring factors.
3. Consistent Payment History: Making your monthly lease payments on time is crucial. This builds a positive payment history, the most significant factor in your credit score, and demonstrates your reliability as a borrower.
4. A Healthier Credit Mix: A lease diversifies your credit profile. Lenders view a healthy mix of credit types (like installment accounts and revolving credit) favorably, as it shows you can responsibly manage different kinds of debt.

How Much Will Leasing a Car Affect Your Credit Score?

Leasing a car can influence your credit score in several ways, both during the application process and throughout the lease term. Here are the key factors to consider.

• Hard Inquiry. When you apply for a lease, the lender performs a hard credit check. This can cause a small, temporary dip in your credit score, which usually recovers within a few months.
• Payment History. Your monthly lease payments are reported to credit bureaus, just like a loan. Consistent, on-time payments can help build a positive payment history and improve your score over time.
• Credit Mix. A car lease is considered an installment account, diversifying your credit profile if you only have credit cards. This improved credit mix can have a positive effect on your score.

How You Can Avoid Leasing a Car Affecting Your Credit Score

Make On-Time Payments

The most crucial factor is consistently making your lease payments on time. Late payments are reported to credit bureaus and can significantly lower your score. Setting up automatic payments is a simple way to ensure you never miss a due date and maintain a positive payment history.

Monitor Your Credit Report

Regularly check your credit reports for any inaccuracies related to the lease. Disputing errors promptly can prevent them from unfairly damaging your credit. This proactive step ensures your report accurately reflects your financial responsibility and protects your score from any lease-related mistakes.

Choose the Right Card to Leasing A Car

Your credit score is dynamic, not set in stone, and there are many proven methods to improve it. With consistent positive behavior, most people can see meaningful changes to their score in just a few months.

• Monitor your credit reports. Obtain free reports from the three major bureaus—Experian, TransUnion, and Equifax—to identify and dispute any inaccuracies that could be hurting your score.
• Set up automatic payments. Your payment history is the most significant factor in your credit score, so setting up automatic payments ensures you never miss a due date.
• Reduce your credit utilization. Aim to keep your credit utilization ratio below 30% by paying down balances or requesting credit limit increases on your existing accounts.
• Become an authorized user. Being added to a credit card account with a long history of on-time payments and low utilization can help improve your own score.
• Diversify your credit mix. Lenders like to see that you can responsibly manage different types of credit, such as revolving credit from cards and installment loans.

The Bottom Line

Leasing a car affects your credit score much like a loan. It requires a hard inquiry and adds new debt, but making consistent, on-time payments can help build your credit history.

Frequently Asked Questions

Does returning a leased car early hurt your credit?

Yes, ending a lease early can harm your credit. You'll likely face substantial termination fees, and if they go unpaid, they can be sent to collections.

How much will a car lease drop my credit score?

The initial hard inquiry might cause a temporary dip of a few points. However, consistent, on-time payments can help improve your score over the lease term.

Does leasing a car help build credit?

Absolutely. A car lease is treated like an installment loan. Making timely payments demonstrates creditworthiness and can positively impact your credit history and score over time.