What Credit Score Do You Need to Lease a Car?

What Credit Score Do You Need to Lease a Car?
What Credit Score Do You Need to Lease a Car?
Finance
| Mar 29 2022
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Car Leases and Credit Scores: What You Need to Know

Car leasing has become more and more popular over the past decade. And it’s no surprise; there are many benefits to leasing a car. You get to trade in and get a new car every few years, you don’t have to worry much about maintenance, and the monthly payments tend to be much lower than traditional financing. But sometimes the requirements of leasing are more strict than the requirements of financing, especially when it comes to your credit score.


The credit score you need to lease a car will vary from dealer to dealer. Having a good credit score will earn you a much better interest rate and better repayment terms. But if your credit score is less than perfect, you may still be able to lease a car.


According to data gathered by Experian, over half of lessees had a credit score over 741 in the fourth quarter of 2021. Though that is a pretty high bar, all is not lost if your credit score is below that. In fact, you may even be able to get a lease if your credit score is below 700, although you may have to make some concessions. But having a good credit score will put you in a much better position to negotiate a good car lease.


Today we are talking about why your credit score is important when leasing a car, and how you can improve your score to get the best car lease deals and terms.



Why is a Good Credit Score Often Needed for a Car Lease?


When determining your car lease rate, lenders will look at the following factors:


  • Market rates
  • Your income
  • The vehicle you want to lease
  • Your credit score


And while these are all taken into account and are all important, your credit score is without a doubt the most important factor in determining your car lease interest rate.


Credit scores indicate to lenders how reliable of a customer you are. Will you pay your debts back? Will you pay them back on time? The less of a risk you are as a borrower, the more likely you will be approved for a car lease and the better the interest rate you are offered will be.


Your credit score is determined by five major factors:


  • Your payment history. This makes up 35% of your credit score. This category tells lenders if you pay your accounts on time, and if your payments are on time, full, and consistent.  This is the most important category in your credit score.
  • Your amounts owed. This makes up 30% of your credit score. This category tells lenders how much debt you are in. The accounts owed category uses your credit utilization ratio, which measures the amount of money you owe to the amount of credit you have available to you. This is measured both as an overall ratio of your total debt and total credit, and measured for each individual account. You want your credit utilization ratio to be less than 30% ideally. 
  • The length of credit history. This accounts for 15% of your credit score. This measures how long you have had your accounts open. The longer you have a history of open accounts that you consistently pay, the higher your score will be.
  • Your credit mix. This section accounts for 10% of your credit score. This section looks at how diverse your portfolio is. A healthy mix of loans, credit cards, retail credit cards, mortgages, etc will help show lenders that you can balance having varying accounts open.
  • Your new credit. Your new credit category accounts for 10% of your credit score. If you are opening new lines of credit, it means there are some variables that may change your current credit situation. For example if you are opening a new line of credit, you may currently owe more money than your current report is reflecting. 


The most important categories in your credit score are your payment history and your amounts owed. Staying current with payments and making sure that you do not take on too many debts are the most important things you can do for your credit score.


Your credit score takes all of these factors into account and assigns you a three digit number between 300 and 850. These scores are defined along the following categories:


  • Exceptional (Super Prime): 800-850
  • Very good (Prime): 740-799
  • Good (Near Prime): 670-739
  • Fair (Subprime): 580-669
  • Very poor (Deep Subprime): 300-579


As the latest Experian data pointed out, more than half of lessees were reported to have either prime or super prime credit scores. With these high credit scores, you will be more likely to get a better car lease rate and better leasing terms.



Does Leasing a Car Build Credit?

A car lease is a type of installment account. An installment account is simply a loan that has fixed payments over a period of time. Other types of installment accounts include mortgages and personal loans. Installment accounts are reported to credit agencies, therefore they will affect your credit score.


Leasing a car will be another monthly bill that you will have to keep up on. But if you can make consistent, on time, and full payments, leasing a car can help boost your credit score. Make sure you do not get in over your head with your car lease; car payments can add another burden on a tight monthly budget. Always make sure you have breathing room in your budget in case of an emergency.


How Can You Improve Your Credit Before You Apply To Lease a Car Online?

You want to make sure that your credit is in its finest shape before you look to lease a car online. Here are our top tips to improve your credit score before applying for a car lease.


Check your credit report

You can request a copy of your credit report once a year from each of the three major reporting agencies (Experian, Transunion, and Equifax). That means that three times per year you should be reviewing your credit report for errors or mistakes. Be sure to do this before you apply for a lease. Compare your payment histories, make sure there aren’t any strange accounts that you are unaware of, and make sure all of your personal data is up to date. IF you notice any mistakes, report them immediately. Little issues here and there can spell big trouble for your credit score.


Commit to making on time payments

Since your payment history makes up 35% of your credit score, this is very important. Pay extra attention to your payments in the months leading up to your lease inquiry. Signing up for autopay can be very helpful if you have a tendency of missing payments. If your accounts don’t offer autopay, try setting up alerts in your calendar to remind yourself that a payment is due.


Pay down your debts

Reducing your credit utilization ratio by paying down debts can have a positive effect on your credit score. Remember that your credit utilization ratio is calculated on your total debts, as well as your individual accounts. So if you have one account in particular that you owe a lot of money on, try to strategize your payments and pay down those debts first.


Request higher limits

While many accounts will automatically grant you higher limits as your account matures, it doesn’t hurt to request a higher limit. Requesting higher limits from your credit accounts can help improve your credit utilization ratio and boost your credit score significantly.


Wait on opening other new accounts

Opening a new account triggers a hard inquiry on your credit report, which can cause your score to dip slightly. It can also affect your length of credit history. These are only minor dings on your credit score, but it’s best to hold off anyway. You never know what few points could stand between a good credit score and an excellent credit score.


Become an authorized user

If you have a family member who has exceptional credit, you can ask them to become an authorized user on their accounts. This can give your credit score a major bump.


Try Experian Boost

Experian Boost  is a new service that can instantly boost your credit score by including payment histories that are usually not included in credit score calculations. For example, your on-time Netflix payment would not normally count towards your credit score, but with Experian Boost, it would count positively. And if Experian finds that you don’t have a good history with these accounts, it won’t count them against you. While this won’t boost your score 100 points, it can give you an extra few points that might make all the difference for your car lease rate. 



It’s important to have a good credit score to get the best deal on your car lease. 


Leasing a car is a great option for many people, and having an excellent credit score can help you get a great deal. If you already have a car lease and are looking to purchase your lease, Auto Approve can help! Car lease purchase is one of our specialties, and we can help secure you a great rate with one of our top lenders.


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