Will leasing a car improve a bad credit history?
If you have a bad credit rating, you may struggle to secure a great car leasing deal. Leasing a car with a bad credit car leasing company may be the way to go. At Eureka, we offer car lease deals for people with less than perfect credit, helping to improve your credit rating while you enjoy a brand new car.
Yes, car leasing can help to improve your credit rating if you currently have poor credit. But how?
Your rental history contributes a sizable percentage of your credit score, so meeting rentals on time is vital. As with any credit deal, you agree to pay a fixed amount each month over a set period. Improving your credit rating takes time but if you keep up with your lease rentals, you prove to lenders that you are financially stable and can handle your lease rentals responsibly.
“Keep up with your monthly rentals to show lenders you are financially responsible.”
A lower utilisation ratio
Your credit utilisation rate is calculated by considering how much you owe in relation to how much credit you have available to you. A common misconception is that your credit utilisation ratio only considers your credit card debt. However, both your revolving credit (credit cards) and instalment accounts (car leases) are used to calculate your utilisation ratio. The more of your car lease you pay off over time, the more credit you will have available and the lower your utilisation ratio will be. This makes up a significant portion of your credit score, so is a key factor in determining whether you have good or bad credit.
Varying your accounts
Your car lease is classed as an instalment account (i.e. paid off in a series of instalments) and just having this type of account on your credit record may improve your score. The more varied your accounts, the better your credit score will be. For example, if you only ever have credit card accounts on your file, adding a car lease will vary the types of credit you hold and work towards improving your score.
“Leasing a car will help to improve your credit history in the long run, by showing lenders you can effectively manage your debts.”
When companies search your credit report, they want to see how financially responsible you are. A credit history helps them to do this, as they can see how you have managed your debts in the recent past. If you have only just turned 18 or have never been in debt, you may not have any credit history to prove how reliable you are. Paying your car lease rentals on time over an extended period will contribute to a stronger credit history and show lenders that you are financially stable.
Applying for new accounts can sometimes reduce your credit rating. So, although applying for a car lease may initially do a small amount of damage to your credit score, as long as you keep up with your monthly rentals it will help to improve it in the long run. It’s important that you only apply for lease deals that are within your budget, to ensure you can easily manage your monthly rentals.