When you are considering leasing a car, your credit history and credit score are critical determinants on whether or not you get approved and the kind of deal you get.
Scores of 720 and over translate to the best terms. As the scores get lower, the terms of the lease get less and less favorable. On the other hand, some car lenders are willing to lease cars even if your credit score is below the minimum requirement of 620. The question, however, is if the lease rate is worth the deal.
So, what credit score do you need to lease a car? Here’s what you need to know:
Credit Score Ranges
Before any auto finance dealer approves a lease, they consider your credit score. Notably, the exact score needed varies among different dealers. That said, they all work within similar ranges. These ranges dictate the terms of your car lease.
Credit Scores of 720 and Over
This is the super ideal range of your credit score. It is an indicator of your trustworthiness as a borrower which gives you more negotiation power over the terms of the lease. For instance, if you do not have enough down payment, you can renegotiate for a low amount and higher monthly installments.
Additionally, you have a wide variety of cars to choose from, low interest, and you will spend less time shopping since every dealer wants to work with you. It’s like a ‘sure bet’ that you will get a lease approval.
Credit Scores from 660- 720
In this category, you might not get the best deal but you are still considered a prime lessee. The probability of having your lease approved is high since you are not seen as a risk. You may also get the same advantages as people with higher scores. However, you may pay a higher interest rate.
Credit Scores Between 620 – 659
Being in this category means that you are in the minimum range for most dealerships. You will have challenges getting a dealer who will consider you for a lease.
Typically, you are considered a bit risky and if you do get a willing dealer, the odds are high that they might not favor your demands. Besides higher interest rates you are likely to part with a huge down payment and higher monthly payments.
Credit Scores Below 620
Given that the typical minimum credit score for a car lease is around 620, the chances of getting a car lease approval in this range are slim. Most lenders consider you a risk since there is no assurance of timely payment. While it is not entirely impossible to get a car lease, you will spend a lot of time shopping around.
This is not only frustrating but it also means that you can only get a limited number and model of cars to choose from. What’s more, the few dealers that might work with such low scores tend to demand very high rates and also ask for a security deposit.
For assistance in repairing your credit and getting a higher score, contact Credit Absolute for a free consultation.
How to Lease a car with a Low Credit Score and Grow your Score
Being on the lower end does not mean that you cannot enjoy a car lease. There are ways to ease the process and also repair your score in the long run. Here are some pointers:
- Consider a car that is used for approval purposes. It’s less challenging to get a lease on a used car compared to a new car.
- Ask someone who has good credit to co-sign for you. This way, you will get the car that you want and grow both your credit scores during the lease period.
- Ensure that you make timely monthly payments on your other debts. Note: Payment history accounts for 35% of your credit score.
- Time your application to the end of the year when dealerships are getting ready for new year model releases. While the trick doesn’t always work, you might find a dealership willing to negotiate with you if they have a car that has overstayed in their lot.
- Make sure you limit your applications to leasing companies where you have a higher chance of approval- browse for requirements of several dealers beforehand.
The Bottom Line
There’s no doubt that your credit score plays a major role in the terms of leasing a car. Now that you are aware of what to expect with your credit score, you can go ahead and strike a deal or if you feel limited, wait a little longer to notch up your negotiating power.
Common Mistakes That Lead to a Lower Credit Score
Getting a loan or a new line of credit is usually subject to a 3 digit-number known as the credit score. And although it is not the only indicator used by banks and other lenders, your score weighs heavily on your financial health. So, what are the common mistakes that lead to lower credit score and how can you avoid them?
1. Missing or Delaying Payments
Since your credit score is an overview of your financial undertakings up to the point of applying for a loan, how you handle existing debt matters. Delays or late payments on other loans or credit card installments will affect your score negatively.
Up to 35% of your credit score is determined by your credit history. This calls for timely payments, and where that is not possible, negotiate with your lender for fairer terms to ensure continued payments. Luckily, the moment you restart regular payments, your score starts to improve.
2. Over Utilizing Your Credit
As earlier noted, you need to pay your debts on time for your credit score to stay high, but the amount of credit you use matters. Known as credit utilization rate, this is the ratio of your credit card debts divided by the amount of credit that is available to you.
The ratio is expressed as a percentage and the higher it is, the worse your credit score gets. Of your total credit score, 20% is determined by this ratio.
Tip: Whenever possible, only use up to 30% of your credit to ensure that your credit utilization ratio remains low.
3. Having no Credit Lines
As a follow-up on the second mistake, you may think that having zero lines of credit will make your score high. Unfortunately, that would be unwise. Remember that your credit score is derived from your credit history. Without any history to look at, there will be less information for accurate analysis and your score will be low.
4. Having Errors in Your Credit Report
Errors, whether clerical or fraudulent, are some of the common mistakes that lead to a lower credit score. Avoid such mistakes by checking your credit report regularly and disputing any errors. On the upside, credit reporting bureaus are obligated to furnish you with a free report annually.
Also, unlike when a lender requests your credit report which can affect your score adversely, checking your own report has zero effect on your score. Besides, monitoring the report helps you to keep track of any payment that you might have missed. So, check your report periodically and ensure that you can account for all entries.
5. Closing Your Credit Facilities
After you have paid off a credit card or loan, what comes next? Choosing to close the credit line is a huge mistake. Essentially, you will be erasing a good history that speaks to your ability to repay debts. Particularly, if you were repaying your monthly debt installments on time, then that history needs to be on your report.
Also, closing credit cards lowers the average age of your accounts, which in turn lowers your credit score. Known as credit age, this is the average time that your accounts have been active, and the higher it is, the better your credit score will be.
15% of your FICO credit score is based on the length of your credit history.
A low credit score can deny you anything from a mortgage to a new credit card. A bad score also means high rates and other stringent terms on a new loan. You can keep your credit score from dropping by avoiding all of the above common financial mistakes.
For credit repair and financial advice, contact Credit Absolute for a free consultation.
Coming Back from Terrible Credit (Where to Start)
Coming back from bad credit can be difficult because people don’t always know where to start. Good or excellent credit may be your goal, but to reach that higher score, there are certain steps you have to take.
If you want to see positive changes in your credit score, there are a number of things that you can do to start on your path to better credit.
Review your credit report
Consumers shouldn’t assume that the information reflected on their credit report is accurate and up-to-date. Reviewing your credit report will allow you to catch mistakes such as the balance on your credit card or the date your last payment was made on your personal loan account.
If you have questions or doubts about the information on your credit report, you can submit a dispute and have an investigation completed to confirm the information. If any information is inaccurate, it could be corrected or removed, and potentially increase your score.
Watch credit utilization
Your credit score is calculated using a variety of information about your finances and your money management skills. Credit utilization accounts for a certain percentage of your credit score and depending on your credit utilization, your score can increase or decrease.
It is recommended that all consumers keep their credit utilization at 30% or less. This means that if your available credit totals $1000, you don’t want to use more than $300 of that available credit. If you go over this percentage, you will likely see a drop in score, and the only way to change that would be to decrease your credit utilization.
Make on-time payments
Everyone has monthly bills that they are responsible for paying. Whether a payment is on time, missed or late, creditors can report this activity to the credit bureaus, which in turn will affect your credit score.
Avoid applying for new credit
Applying for a new credit account will result in a hard inquiry on your credit report. Each hard inquiry can take points off your score whether you are approved or denied, so you will see a significant drop if you continue to apply for credit. Before applying for a credit card, personal loan, or another type of credit account, consider your odds of approval and if applying is worth losing the points.
Pay down debt
The amount of money you owe is another piece of information that is used to calculate your credit score. Paying down your debt can be beneficial to you because you will owe your creditors less money, but you will also increase your score. Basically, the more you owe, the lower your score will likely be. But if you work on reducing your debt, you can easily see a bump in your score.
Unfortunately, it doesn’t take much to ruin your credit. And once it is ruined, improving your score can take some time. Making better choices about your finances is key, so as long as you actively work to improve your score and avoid making mistakes such as defaulting on student loans, filing for bankruptcy, or even making a late payment on your auto loan, you can see a positive change in your score.
Need help recovering from poor credit? Contact Credit Absolute today for a free consultation.
Why is it Important to Monitor Your Credit? (Top Reasons to Monitor)
A person’s credit scores greatly influence their ability to secure a home loan, rent an apartment, or open a credit card account. Yet, many consumers still fail to keep a watchful eye on their credit report.
Checking up on their credit report may not be a priority, but considering the effect that credit has on a person’s life, consumers have more than one good reason to monitor their credit.
Correct inaccurate information
It is common for people to have inaccurate information reflected on their credit report. Creditors can see a lot of information when they check a person’s credit, from the spelling of their last name to the current balance on a credit card account and the last time the bill was paid. However, if this information is inaccurate, the consumer will have to be the one to get it corrected to ensure the creditor will be able to make an informed decision.
One thing consumers can do is file a dispute. In doing so, the consumer is requesting that the credit bureau investigate the information that has been reported. Typically, within 30 days, the credit bureau can inform the consumer of the results of this investigation and whether the information is valid or needs to be updated.
Protect yourself against fraudulent activity
The number of identity theft victims within the US totaled 14.4 million in 2018, according to Javelin Strategy and Research’s 2019 Identity Fraud Study. If an account is fraudulently opened in someone’s name, this account will appear on that person’s credit report. Unbeknownst to the consumer, there is someone out their charging thousands of dollars to a credit card with no intention of paying the bill.
Depending on when a person views their credit report, they will be able to see that there is an open account that they didn’t actually open and take action. Alerting credit bureaus of this activity can get the information removed from the credit report, but people should also report this to the FTC and contact the police, as identity theft is a crime.
Avoid unnecessary hard inquiries
Applying for credit will result in a hard inquiry. One or two hard inquiries on a credit report may not impact a person’s score by a lot, but as the number of hard inquiries increases, a person’s score decreases. Luckily, someone who knows their credit score knows their odds of approval when applying for a personal loan, credit card or another type of credit account.
For example, if a lender requires a borrower to have a score of 650, and an applicant has a score of 600, the chances of denial are high. Should that applicant know beforehand that they do not meet the lender’s minimum credit score requirement, they would be able to find a more suitable option for their credit profile and avoid unnecessary hard inquiries.
Improve/rebuild your credit
Credit reports contain a lot of information about an individual’s finances and credit health. The information that is reported to the credit bureaus is what is used to calculate credit scores, and certain information can cause a person’s score to drop significantly.
When someone monitors their credit, this gives them the opportunity to improve it because they can see what activity is negatively impacting their score. Someone with high credit utilization will be able to determine that using their credit cards less will increase their score. Or that if they avoid applying for credit too often, no new hard inquiries will be listed and decrease their score.
Being in the know is important when it comes to a person’s credit score. Even if they don’t want to monitor their credit on a daily, weekly or monthly basis, obtaining a free credit report every year would still allow them to keep an eye on things and do what is necessary to maintain a healthy credit score.
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