The effect that car leasing has on your credit score is a commonly asked question amongst our customers, and it is vital that you are aware of the implications that leasing can have on your credit history before undertaking any sort of application for credit.
Any monthly repayments, your credit card balance, your mobile phone bill or car insurance, all count towards your credit score.
If you have a good credit score, then great you should have no problems acquiring finance. If you have a bad or non-existent credit history then this may cause you some issues.
There are numerous ways to build, check and protect your credit score. So we have detailed some of the most important factors linking car leasing and the effect it will have on your credit score.
What is my credit score?
In layman's terms, your credit score is a statistical number based on your trustworthiness in the eyes of lenders. Different credit companies use different metrics and have different values, but they all equate to the same ratings (good to bad).
A person’s credit score can range from 300 to 850, the higher your credit score the more likely lenders are to accept you for credit and deem you as financially trustworthy.
A credit score is almost like your fitness level, it takes a long time to build it up, but a couple of slip-ups can majorly dent your progress.
Your credit score takes into account all previous credit, payments, and applications, everything involving open accounts and repaying the debt will be monitored when compiling your credit score.
Can I check my credit score before making an application?
Being aware of your credit score, especially prior to making applications for credit is vitally important. Whether you want to check your progress, see if you’re eligible for certain deals, or are curious about what yours is, there are numerous options at your disposal.
There are two free options that are easy and most notably won’t make a hole in your wallet. If you want to check your credit score or see your credit history - Clear Score and Experian are your best friend.
While they use different values, as Experian uses their own metrics and Clear Score get their data from Equifax (a credit reference agency) - they are both good indicators of how healthy your credit score is.
Whether you’re looking for a Mercedes-Benz E Class Saloon or an Audi Rs 3 Sportback, having a quick check of your credit score before applying for credit is a good idea. Especially because these checks will not impact your score whereas hard checks from applications will.
What are my options if I have poor or no credit history?
If you have poor or no credit history it is most likely that you will not be accepted for car leasing. And if you are accepted you may be offered higher than most interest rates, be asked for a security deposit or be subject to tighter restrictions regarding repayment.
Unfortunately, if you have no credit history, while you know you are a trustworthy person and will repay your debt in full and on time, possible lenders have no evidence of this. As this may be the case for most young adults, don’t be discouraged because everyone has to start somewhere.
Most vehicle finance lenders look for ‘good’ to ‘excellent’ credit history to be accepted. So if you have poor or no credit history, this may just mean that car leasing is not an option for you at this time.
However, take this time to go away and work on your credit score so you’re more likely to be accepted for future applications. Just remember that improving your credit score won’t happen overnight.
How can I improve my credit score?
There are no ‘quick wins’ when it comes to finance and building your credit score, and as aggravating as it may be building your credit score is about playing the long game and looking at the bigger picture. Proving your trustworthiness to possible lenders isn’t a quick or easy process, but it is definitely in your interest to do so.
Here are some ways to improve your credit score:
- Being on the electoral roll (while this may seem simple, it is one of the many factors that are considered when building your score)
- Making all payments on-time and in full
- Using less than 50% of your available credit (this shows that you are good at managing your money and are not overly depend on credit)
- Keeping an account open for a long-time
- Having different types of credit - a loan is viewed differently to that of a credit card and all can work towards building your credit persona online
How can I avoid damaging my credit score?
It’s all good to work towards improving your credit score, but at the same time, you need to make sure you’re not doing more harm than good. This can be easily done if you’re unaware of what can bump your score down.
Here are some notable mistakes to absolutely AVOID:
- Payday loans (these are a sign of reliance on credit and inability to manage money effectively)
- Frequent hard searches and applications for credit (note that a single hard search will stay on your credit report for two years but only impact your score for one)
- Missing payments
- Maxing out credit cards (credit utilisation counts towards 30% of your FICO score)
If my application is rejected will this negatively impact my credit score?
A rejected application does not actually hurt your credit score. However, the initial hard scan can make your credit rating dip, so regardless of whether you are accepted or not it will hurt your score if even only a little.
But the only issue is that being accepted for credit allows you to build your score back up over time, whereas if you are rejected you are unable to do this.
You should avoid making frequent applications for credit, only apply when it is absolutely necessary and you know you can commit to making payments in full and on time.
You should also try spreading out any applications for credit you make, whether that is for a credit card, loan, mortgage, etc. as too many applications within a short space of time can hurt your credit score.
What are the benefits of leasing a car on my credit score?
While obviously the benefit of leasing a car would be along the lines of lower monthly payments, easier transition to new cars and low repair costs, etc. you may be overlooking the positive effect this may have on your credit score.
A considerable percentage of your credit score is built upon the ability to make monthly repayments consistently, so leasing a car is just another opportunity to prove your ability to manage money effectively.
Making regular repayments for your Jaguar car lease, for example, will overtime (depending on the duration of the contract) see that there are improvements to your credit score - albeit there is no definitive rate at which this will happen.
Another factor that influences your credit score is the different types of credit that you have, as credit cards and loans are looked at differently. So if you are currently without a loan or any type of finance, it is a great opportunity to demonstrate your reliability in a different environment.
What happens if I am unable to keep up with repayments?
If you are currently in the process of repaying your debt, and you suddenly become unable to continue making these repayments. You have a couple of options at your disposal, alongside obviously contacting your finance provider as soon as possible.
You may be able to terminate your contract early or transfer the payments to another person who is able to take over future repayments (take note that this may be more difficult to do with family members). Whatever the outcome may be, speaking to your finance provider to discuss your situation and your options is vital to make sure they are aware of any problems as soon as they crop up.
Need some advice?
We know that searching for the right car is a pain, even without throwing in the added hurdle of managing your credit score into the equation. This is why we aspire to help our customers find the right deal for the right price, as easily as possible.
So if you would like to discuss your eligibility please call us on 01675 466433 or take a look at our special offers for car leasing deals available.