A credit report follows you everywhere, which is one reason people do their best to improve their score. The thing that many people notice is fixing a report takes time. You are leasing or thinking of leasing a car and are wondering how this may affect your overall report. Well, the following points should help enlighten you on what might happen to your score.
Why Does Your Credit Score Matter?
Credit scores can help lower your monthly installments as long as the score is good. A good score could be the difference between getting that apartment you want or not. Those who want to have an emergency credit card on hand might be able to get approved for more than they might have imagined.
Of course, there are more benefits, but these are just a few to motivate you to improve your credit.
How Will a Lease Affect my Credit Report?
The truth is that leasing a car could help and hurt your credit just like anything else. For one, getting a lease will likely hurt your credit initially, but this will only last a little while before it makes a positive jump. The reason it might hurt your credit score is because you are taking on a big responsibility.
Now, your score can improve once you prove yourself worthy, and this is where leasing can help. Creditors want to see your ability to keep your word by paying on time, every time. Leasing is not seen much different than a car loan, so those payments will be taken into account. What you have to remember is that 35 percent of your entire FICO score is based on your ability to pay on time, which is how leasing helps.
The reason leasing a car is potentially better than purchasing a car is because those who purchase a car have to make larger payments every month. This is because the loan and payments are based on the entire purchase price of the car.
A leaser does not compute the monthly installments based on the entire value of the car but the depreciation value during the lease term. This is the reason you end up paying less every month. Of course, the probability of being able to pay a cheaper bill is higher than paying a larger sum each month.
Those who purchase a car may have a hard time making ends meet because the payments are so high. Some miss their payments while others make partial payments. Both of these hurt your credit score. It is clear to see why leasing a car is a little safer, especially if you are trying to build your credit score.
If you pay attention to credit reports, you will notice that there are some differences between leasing and using a credit card. Things like credit cards are usually considered revolving accounts. A large amount of your credit score comes from revolving accounts, yet a lease is not considered a revolving account. The lease you are taking out is going to be listed as an installment account.
The creditors assume that you are going to be able to pay the amount you owe as long as you keep up with your payments. You are going to be gaining percentage points as you reduce the outstanding amount on your lease. So, yes, revolving accounts help improve your credit score faster, but a lease will still help your score as long as you keep up with your payments.
You should also remember that creditors love to see account diversification. Those who already have a number of credit cards need to start thinking of diversifying because 10 percent of your FICO score is based on your ability to handle different accounts. Leasing a car opens your first installment account, which should help improve your report.
In the end, there are a number of ways that leasing a car improves your report. Yes, it will hurt at the beginning since inquiries and new accounts always make your score drop a bit, but the effects are short-lived. The negative effects usually disappear within a few months, though some do last a little longer. It is a good idea to keep an eye on your score throughout your entire lease so you know what is going on at all times. Hopefully, this information made it easier for you to understand how your credit report is affected by your lease.