What Credit Score Do I Need for a Car Lease?

What Credit Score Do You Need to Lease a Car?

There's no standard minimum credit score requirement for a car lease, but you'll have a much easier time getting approved if you have good credit or better. When a financing company reviews an application for a car lease, it looks for signs that you're a dependable borrower, and one of those signs is a good credit score.

In addition to better approval odds, a higher credit score can work in your favor in several ways, including:

• Lower money factor: Leasing companies use what's called a money factor to determine how much you'll pay in interest. It's usually expressed as a decimal—say 0.00125—which you can multiply by 2,400 to get your effective annual percentage rate (APR). The higher your credit score, the lower the money factor on your lease and, therefore, a lower monthly payment.
• Less cash upfront: Leasing companies will typically ask for a larger down payment from someone with a lower credit score to help compensate for the risk associated with their credit history.
• More vehicle choices: People with lower credit scores may not get access to the same selection of vehicles as car buyers with good credit or better.

Can I Lease a Car With Bad Credit?

It's possible to lease a car with a bad credit score. But you might be charged a higher money factor rate, leading to a bigger monthly payment. You'll also have fewer options, as some leasing companies only work with buyers with higher credit scores.

If you have bad credit, here are some steps you can take to compensate for the potential risk:

• Make a big down payment.
• Pay off debt to reduce your debt-to-income ratio.
• Choose a less expensive vehicle to lease.
• Ask a friend or relative with good credit to cosign your lease.

Pros and Cons of Leasing a Car

Leasing can be beneficial for people who want a new vehicle with a lower monthly payment compared to a car loan. But some of the ways leases are designed can make it less appealing to some car buyers. Here are benefits and drawbacks to consider.

Learn more: Should You Lease or Buy a Car? Here's How to Decide

How to Improve Your Credit Before Leasing a Car

Working to improve your credit before applying for a lease can be a smart cost-saving move. Here are some ways you can improve your credit to get ready for a car lease:

• Make all debt payments on time. Payment history is the most important factor in your credit score, representing 35% of your FICO^® Score. As a result, making timely payments on credit card bills and other debts can go the furthest to help your credit.
• Pay down credit card balances. The amount of debt you owe makes up 30% of your FICO^® Score, and your credit utilization rate on revolving accounts such as credit cards is a large part of that calculation. Because your credit utilization rate is calculated each time your balances update, paying down your credit card debt can potentially increase your credit score quickly.
• Hold off on applying for new credit. Applying for new credit can ding your credit score slightly due to the hard inquiry that will appear on your credit report, so it's best to hold off until after you get your lease.
• Dispute inaccurate information on your credit report. Inaccuracies on your credit report can pull down your credit score. If you review your credit report and find anything amiss, you have the right to file a dispute with the credit bureaus.

Alternatives to Leasing a Car

Depending on your situation, there may be other options for getting a vehicle beyond leasing. Here are some to consider:

• Finance a used car. You may have an easier time getting approved for a car loan if you're buying a used car, usually because you're borrowing less money compared to a new vehicle.
• Shop around. Lenders have different criteria for evaluating loan applicants, so comparing offers from multiple lenders will give you your best chance of getting approved and securing the best terms you qualify for.
• Add a cosigner to a car loan. If you have a family member or friend with good credit, ask them to cosign your loan application. Because they're agreeing to make the payments if you fall behind, the lender will evaluate both credit profiles. This approach could help improve your approval odds and secure a lower interest rate.
• Check with credit unions. As not-for-profit institutions, credit unions may be more willing to work with lower credit scores, and they may even offer lower interest rates across the board.
• Pay with cash. If you can afford to buy a less expensive vehicle outright, that allows you to skip the financing aspect altogether. You also won't have to deal with ongoing monthly payments.

Be aware: Buy here, pay here dealerships lend to you directly and often don't check your credit, but they generally charge higher interest rates than other lenders. What's more, they may not report your on-time payments to the credit bureaus, though they might report missed payments.

Frequently Asked Questions

The Bottom Line

Leasing a car may be an ideal option if you don't want to commit to a car loan. However, it might be tougher to qualify for a car lease because the credit requirements often are stiffer. Before shopping for a car lease, check your credit report and FICO^® Score for free from Experian to see where your credit stands.