A car lease gives you an opportunity to rent a car of your choice for an agreed period. Just like loan repayment, leasing a car requires you to pay monthly installments and is, therefore, a major contributor to your credit history.

So, does leasing a car help build your credit score? The short answer is that, if you make all your payments on time, an auto lease can improve your credit score. Here’s what you need to know about car leases and credit scores:

How Leasing a Car will Help you Build Your Credit Score

While it is not a requirement, most legit car lenders, and dealers, report your payment activity to the three major credit bureaus: Experian, Equifax, and Transunion.

Once your payments are reported, they become part of your payment history which influences 35% of your credit score.

Below, here are some highlights of what you can do to improve your score during the term of your car lease.

• Make Timely Payments

Late or defaulted payments reflect negatively on your credit history. This consequently lowers your credit score. To ensure that you can make your payments every month and do it on time, settle for an affordable monthly payment spread out over a longer period as opposed to higher payments over a shorter period.

• Check out your Credit Reports Regularly

To understand your current credit health, check your credit reports regularly. By so doing you will be keeping tabs on your debts and any errors that prospective lenders might see on your report.

More importantly, getting the report is the first step towards disputing errors on your lease terms. In such cases, you can raise a dispute with the company responsible for the inaccuracy in time to ensure that your score is not affected negatively.

• Embrace a Credit Mix

Besides your car lease, having varying lines of credit reflects on your ability to manage multiple lines of credit. And although a credit mix accounts for only 10% of your score, it can provide a much-needed boost to your score.

With that in mind, it’s worth noting that a car lease is classified as an installment account. This makes a lease different from revolving accounts such as credit and gas station cards.

• Minimize Credit Card balances

Boosting your score with a car lease would not make sense if you hurt it in other ways. Credit card utilization ratio, or the percentage of the money you are using out of the credit you have available, accounts for 30% of your score.

It is calculated for each of your credit cards and also across all of them. Even as you go for a credit mix, it is paramount to keep your credit utilization ratio at 30% or below.

• Keep Old Accounts Open

Keeping old lease accounts open will help your score by increasing the age of your credit, also known as credit history. This accounts for about 10% of your credit score.

Can you Lease a Car with Bad Credit?

Despite the fact that leasing companies mostly consider consumers with good credit, you could improve your odds of getting approved for a lease and get an opportunity to start rebuilding your score. Here’s how:

Make a Down Payment

Making a huge down payment not only shows your commitment to the leasing agreement but it also helps to reduce the overall amount of the lease. This also means lower monthly payments.

Consider a Cosigner

If you are not financially stable, consider asking someone with a positive credit history to co-sign the lease with you. Since both of you share responsibility for the account, it affects both of your credit reports. Good payment history will, therefore, help rebuild your score.

Improve your Debt to Income Ratio

Debt-to-income-ratio is the comparison of how much you owe against how much you earn. A high DTI ratio indicates that you have trouble meeting your debt obligations.

So, before you attempt to get a car lease with bad credit, reduce your DTI. Among the measures, you can employ include getting a second job or clearing credit card debts.

Conclusion

It is apparent that leasing a car can help build your credit score. However, this works hand in hand with your other lines of credit as they together make up your credit report. As such, put all your financial obligations into consideration before you sign a car lease to avoid causing more harm to your score.