Are you thinking about leasing a car and wondering how it might affect your credit score or if, can leasing increase credit score?


What is car leasing?

Leasing a vehicle - or Personal Contract hire - is essentially a long-term rental.

This means you sign an agreement to use the car over a certain period, and up to a maximum number of miles.

You do not own the car and must return it at the end of the rental agreement.

Car leasing vs finance

Once you have decided on the car you would like, the decision is whether to finance it or lease it.

But how will your decision impact your credit score?

The impact of car leasing and finance on your credit score is the same. This means leasing a car can help you build your credit score just like a loan would.


Potentially improved credit score

Leasing a car and making payments on time may improve your overall credit score.

If you decide to borrow money in the future (mortgages, credit cards, car insurance and loans), lenders may view you as lower “risk” because you've paid off your previous debts in a timely manner.


The downside

But of course, if you miss some repayments, your credit score could be damaged - so it's important to keep on top of your leasing commitments.


Credit checks before you lease

How is a credit check carried out? 

Lenders check your credit score with one or more consumer credit reporting agencies, such as Equifax or Experian.

These organisations collect data on consumers' borrowing history.


What credit score is needed to lease a car?

If you have a credit score of Good or above, you're very likely to be accepted for a car lease.

That’s not to say if you have a credit score below Good, that you will be unable to get a car lease.

Car leasing with bad credit history could still be a possibility.


Car lease with bad credit

When looking for car leasing for bad credit, you may have a difficult time getting approved to lease a vehicle.

You'll generally have a better chance of securing a car loan, albeit with a high interest rate.


How fast will a car loan raise my credit score?

Depending on your current situation, you credit score may drop a few points initially because the lender will make a hard inquiry on your account to check your credit history.

However, as a loan for a car is a high commitment, it can be a good way to increase your credit score.

Always ensuring that you pay your car loan on time will help to grow your credit score faster as payment history, makes up 35 percent of your credit score


How can I get a car lease with bad credit?

There are some things you can do to increase your chance of approval for a car lease with bad credit:


Pay a deposit

If your credit score is low, you may need to pay a big deposit. However, this will reduce your monthly repayments and interest charges.


Poor credit: the guarantor option

A low credit score could make it difficult to lease a car. However, another option is to ask a relative or friend to be a guarantor on your lease.

This means they would be legally obliged to make your repayments if you become unable to do so.

A guarantor must have a good credit history, be financially stable, and be aged at least 18 (or 21 under some agreements).


Some lenders may view a car lease as a loan - composed of all the due leasing payments.


Leasing: Pros

There are some positives to leasing instead of buying a car:

  • Terms are often flexible
  • No worries about selling the car later
  • Your PCH agreement may cover some costs such as road tax


Leasing: Potential cons

  • You may have to pay extra fees if you end the contract early
  • You may have to pay extra fees if you damage the car
  • There could be extra fees if you want to increase the mileage limit
  • In some cases, you may be required to pay three months of the lease up-front