If you are thinking about getting a car, you likely are deciding between buying or leasing. And if leasing seems like the right option for your finances and lifestyle, then you probably want to know what is needed to seal that deal.
Leasing a car typically requires both some cash and a solid credit score. If you have a high credit score, you may snag the best possible (meaning lowest) interest rate. If your credit history is not solid, then you may face higher rates or have difficulty getting approved.
Here, you can learn about:
• What are car lease requirements?
• Can you lease a car with a credit score under 680?
• Can you build your credit?
• Can leasing help or hurt your credit score?
What Are Car Lease Requirements?
It’s a good idea to know your credit score before you start shopping around; your credit score is an important factor influencing the final lease amount. If you have poor credit and only have $300 a month to spend on the lease and insurance, a lot of that amount might be going to the higher interest rate a lender could potentially offer you.
If, on the other hand, you have good credit and $300 a month to spend on the lease and insurance, you may be able to lease a better quality car. Here’s why: Not as much money will be going to interest payments. (It’s always a good idea to weigh the pros and cons of leasing vs. buying a car before pulling the trigger on either financial decision.)
A couple of points to consider:
• When you’re wondering, “Do you need good credit to lease a car,” the answer is typically yes. Having good credit may make it easier to lease a car because a leasing company may not see you as financially risky as someone who has poor credit. Not all leasing companies will necessarily approve a car lease for someone who has a low credit score.
• You might also need to prove that you have a job with a certain income when you’re leasing a car, show recent bank statements, or that you have a cosigner with a good credit history.
What Credit Score Do You Need to Lease a Car?
As you may know, credit scores typically go from 300 to 850, with five credit score ranges:
• Poor credit score, 300-579
• Fair credit score, 580-669
• Good credit score, 670-739
• Very good credit score, 740-799
• Exceptional credit score, 800-850.
That said, what credit score do you need to lease a car? The average credit score of people who leased cars in late 2022 was 736 — generally at the high end of the good credit score range. If you have excellent credit, the upfront costs of leasing a car might be lower than if your credit isn’t so great.
Typically, leasing a car might require the first month’s payment, a security deposit, taxes, registration, and an acquisition fee. Someone whose credit score is in the low 600s might need to put money down on the lease in addition. Keep reading to find out more about how different credit scores affect leasing a car.
Leasing With a Credit Score Above 680
The credit score to lease a car and get favorable rates is one that’s considered a “prime” or “good” credit score, meaning between 670 and 739, or higher. Having good credit typically makes it more justifiable for lenders to approve you for the lease because it’s less of a risk to them.
Just as with any type of financing, applicants who have good credit may be offered lower interest rates on auto leases. Having an above-average credit score could give you more negotiating power over the rates and terms of the car lease.
Leasing With a Credit Score Lower Than 680
Having a lower credit score means you’ll likely have difficulty finding a company willing to lease to you or you’ll pay more to lease a car. Leasing companies may see you as a risk-based on your credit history. You might find that having a trustworthy cosigner on the lease could help you get a lower interest rate or better terms than if you’re applying on your own.
If your credit score is lower than 680, you might want to work on building it before leasing a car so you get a better deal. A good place to start is by checking your credit report which you can do for free once a year at Annual Credit Report.
It’s important to check your report for accuracy — if there are any errors, contact the credit bureau that issued the report. Factors that affect your credit score are your payment history, length of your credit history, how much you owe compared to how much available credit you have, types of credit you have, and any new applications for credit that show up on your credit report. (You’ll learn more about these below.)
Building Your Credit Before Leasing
There are several ways to build your credit before leasing a car. Two of the most important to consider:
• Pay down debt. This will lower your credit utilization ratio or rate, meaning the percentage of your credit limit you are using. The lower that ratio (preferably no more than 10%), the better your credit can look.
• Pay on time. Be meticulous about paying your bills on time or even early. Just one or two late payments can cause your credit score to dip.
Can Leasing a Car Build Credit?
Any time you apply for credit, you have the opportunity to build your credit. A car lease is credit, just as a car loan would be credit.
How you manage your lease payments affects your credit report just as a loan would. Making regular, on-time monthly payments will affect your credit in a positive way. In other words, yes, leasing a car can help build your credit.
Can Leasing a Car Affect Your Credit Score?
As just mentioned, paying a car lease on time can be a positive thing. However, missing payments or being late with payments will hurt your credit and may negatively affect your credit score.
You may also see a small drop in your credit score when the lease begins because your credit report will show a new account is open. You may see a similar small drop when the lease is terminated because the account is closed. Both of these credit events — opening and closing a credit account — can affect your credit score.
If you’re shopping around at different leasing companies over the course of a few weeks and apply for leases at those places, there will be inquiries into your credit history by the leasing companies. However, those multiple inquiries may show up as just one query on your credit report and minimally affect your credit score.
Recommended: Should You Buy a New or Used Car?
5 Things That Impact Your Credit Score
Here are factors that can influence your score:
1. Your Payment History
The single biggest factor in your credit score is your payment history, which can boil down to making payments on time, month after month. That can help build your credit score. Paying late or not at all can trigger your score to drop.
2. The Amount Owed
It can reflect positively on your credit score if you have a low credit utilization rate or ratio. This means that you are using little of your credit limit. Using 10% or less of your credit limit can benefit your score; using 30% or more can have a negative impact.
3. The Length of Your Credit History
Having a longer credit history and having managed lines of credit well for years can benefit your credit score. It shows that you can successfully borrow and pay back money.
4. Your Credit Mix
Having more than one kind of credit account can show that you manage borrowed funds well. For instance, it could be helpful if you have handled both installment debt (student loans and car loans are examples of this) and revolving accounts (such as credit cards) well.
5. New Credit
If you apply for a number of new lines of credit and have what are known as hard credit pulls vs. soft pulls done as part of this, your credit score could suffer. It can look as if you are applying for new debt and could then wind up financially overextended.
It’s important you know your credit score to lease a car before you go car shopping. Checking your credit reports in advance will uncover any surprises before you’re at the dealership. Knowing your credit score and working to build it as much as possible before applying for a car lease may help you save money on your car lease and give you more negotiating power.
The less you have to spend on interest and fees, the farther your money can go while leasing. Successfully managing leases, loans, and credit in general is part of good financial habits. Having the right banking partner can also enhance how well you handle your cash.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Can you lease a car with a 600 credit score?
You may wonder what does your credit score have to be to lease a car. While it’s not impossible to lease a car with a 600 credit score, it will likely take more time and energy to find an offer. You will also probably pay a higher interest rate than those with a higher credit score (680+), meaning you will pay more over the long term.
Does leasing a car hurt your credit?
When you apply for a car lease and the leasing company pulls your credit file, you may see a dip in your credit score in the short term. After that, whether the lease hurts your credit depends on how well you manage the account. If you pay late or miss payments, your credit score could suffer.
Is it better to lease or finance a car?
Whether it’s better to lease or finance a car will depend on your particular financial situation and aspirations. When you finance a car, you can eventually own it outright. It’s similar to buying a home with a mortgage. Leasing, on the other hand, is similar to renting. You never own the car or have it as an asset, but then again, you might like “trading up” every few years.
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