What Credit Score Do You Need to Lease a Car?

If you’re like most Americans, you’re probably financing or leasing your car. To finance or lease a car, you must have a good enough credit score to qualify for a car lease and have your lease application approved. So, what credit score do you need to be able to lease a car? We will answer this question in much detail below.

What Credit Score Do You Need to Lease a Car?

To lease a car, you need a credit score of at least 620. That said, if you have a credit score of 620, there is a high chance that you will either not qualify for a car lease or you will qualify for a lease with bad terms. To lease a car with favorable lease terms, you need a credit score of 680 to 740. If your credit score is 740 or more, you will qualify for the best lease terms. The higher your credit score, the more likely you are to be approved for a car lease and your terms will be better than someone with a lower credit score.

This is so because persons with higher credit scores tend to present a lower risk for lenders because they are more likely to pay on time. Having said that, the requirements to lease a car vary from one dealership to another and from one area to another.

In addition to looking at your credit score, when deciding whether to offer you a car lease, loan officers will consider things, such as: your income and your debt repayment history. When looking at your credit score, some auto dealerships look at auto specific credit scores, which heavily weigh your past repayment of car loans and car leases. So, if you have financed or leased a car in the past and you made all of your payments on time, you should be in good standing to lease a car.

Credit Score Below 680

If you have a credit score below 680, you might face some difficulty leasing a car. If you are lucky enough to obtain a lease, you may end up paying more than you would have paid had you had a credit score above 680. This is so because car dealerships view you as riskier and not as likely to make timely payments on your lease as would a person with a credit score above 680. This is so because the higher your credit score, the less interest you would have to pay. The interest rate on a lease is known as the money factor, the higher the money factor, the more interest you will pay to lease your car. To calculate your interest rate, you should take the money factor and multiply it by 2400. For example, if your money rate is .0024, multiply .0024 x 2400 and this would give you an interest rate of 5.76%.

Credit Score Above 680

If you have a credit score of 680 or above, you will likely qualify for a very good lease deal, probably the same deal that’s advertised on TV. Also, with a credit score of 680 or above, you may be able to lease a car without placing a down payment, but if you put $0 down, you should expect to pay higher monthly payments regardless of your credit score. If you have a credit score of 740 or above, you will qualify for the best lease terms possible because the banks view you as someone who is highly likely to make timely payments on his lease. So, always try to keep your credit score as high as possible so that you’ll qualify for the best available car lease deals.

Does Leasing a Car Raise Your Credit Score?

Leasing a car is similar to financing a car when your credit score is concerned. If you make timely payments on your car lease, this will raise your credit score because making timely payments accounts for 35% of your credit score. However, if you miss a payment, your credit score will drop significantly.

So, treat your car lease as you would treat financing a vehicle: make timely payments. Also, leasing a car can raise your credit score because it creates a credit mix, which is something the credit bureaus state improves your credit score.

CSP PRO Tip: If you’re worried about lowering your credit score by shopping for a car lease, choose a car that you want and check the dealerships criteria for approving car lease applications. This way you can avoid having multiple hard inquiries from being placed on your credit report every time a dealership runs your credit to approve you for a car lease.

What Should You Do to Improve Your Credit Score Before Leasing a Car?

Here are a few things you can do to improve your credit score before heading to an auto dealership to lease a car:

1) Make Timely Payment

If you want to lease a car, the best thing that you can to improve your credit score so that you qualify for favorable terms is to make payments on your loan and credit accounts. This is so because payment history accounts for 35% of your credit score, so making timely payments will dramatically improve your credit score, especially if you have a low starting credit score.

2) Reduce Your Credit Card Balance

Reducing the balances on your credit cards will also help your credit score because having high credit utilization will lower your credit score. So, if you’re using 30% or more of your total available credit, you should lower the balances on your account to improve your credit score before approaching dealerships to lease a new car.

3) Keep Old Accounts Open

If you have an old account, do not close it even though you don’t use it. This is so because your average account age impacts your credit score. The older the average account age for all of your accounts, the better your credit score. So, don’t close any accounts and keep old accounts open as they will raise your credit score.

4) Dispute Any Inaccurate Items on Your Credit Report

You should regularly check your credit score. If you check your credit score and you find inaccuracies on your credit report, you should file a dispute with the credit reporting bureaus or by contacting the bank or creditor on your own. If you find it too difficult to dispute an inaccurate item, you should contact a credit repair agency to dispute the incorrect information on your behalf.

If Your Credit Score is Too Low to Lease a Car, What Should You Do?

If you have a low credit score and don’t qualify for a lease or you qualify for a lease with very bad terms, there are a few things that you can do to qualify for a lease with good terms. The most opted for option is to ask a relative, such as a parent, brother or sister to cosign the auto lease with you. As a cosigner, your relative will be responsible for making the lease payments in the event that you stop making payments. If you stop making payments, you will not only ruin your credit, but you will also ruin the cosigner’s credit.

Make Sure the Lease You’re Entering Into is Right for You

Prior to leasing a car, you should review the terms of your lease agreement work for you. Make sure that you can comfortably make the lease payment on the car. Additionally, you should keep in mind that leasing a car is different from financing a car, it’s more akin to renting a car. So, with a lease, you’re usually limited to driving 10,000 or 12,000 miles per year. Every additional mile you drive beyond the allotted miles, you will need to pay for at the end of your lease. Also, you will be held liable for any damage to the vehicle. For example, if you scratch the front bumper as you’re parking at night, the lessor will probably hold you liable to repair it or pay them for the repair. Just keep these things in mind when you’re deciding whether an auto lease works for you.

Credit Score Planet Frequently Asked Questions

1) Do I need a certain score to lease a car?

You do have to have a fair credit score to lease a car. A fair credit score is one that ranges from 601 to 660. Even having a fair credit score makes it difficult to lease a car. If you want to lease a car with decent terms, you should at least aim to have a good credit score, which ranges from 661 to 780.

2) Can you lease a car with a 580 credit score?

Not many dealerships are willing to lease a new car to someone with a 580-credit score because it’s too low. However, you may find a dealer that’s willing to do so.

3) Does leasing a car hurt your credit score?

Leasing a car may initially hurt your credit score because dealership will run your credit, which places a hard inquiry on your credit report. However, if you lease a car and pay all of your payments on time, you can improve your credit score. However, if you miss payments or don’t make them on time, this could significantly hurt your credit score.

4) Does a car lease show up as debt on your credit report?

Yes, a car lease will show up as debt on your credit report in the form of an installment loan. Usually, the total amount of payments you need to make on the lease will show up as an installment. For example, if you promise to make 30 payments of $200, you will see an installment account on your credit report in the amount of $6,000. As you make your payments, the amount on the installment loan will go down.

5) Can I lease a car with poor/bad credit?

You may be able to find a dealership that is willing to lease you a car with poor credit. That said, it may be challenging to find a dealership willing to lease you a car with bad/poor credit.

Credit Score Needed to Lease a Car

At this point, you probably know that leasing a car with a credit score of 620 or lower is very difficult. In most cases you will not qualify for a lease and if you do qualify, your lease will be very costly. Ideally, to lease a car with decent terms you need a credit score between 680 and 740. For the best terms, you need a credit score above 740. Hopefully this article was able to shed some light as to what credit score do you need to lease a car.