Will Leasing a Vehicle Help Rebuild My Credit?

You have three options when shopping for a car: obtaining an auto loan, buying a car outright with your own money and leasing a car. Buying a car outright will have no affect on your credit rating, while leasing and obtaining a loan will. It's often easier to build your credit by leasing a car than by obtaining a loan for a car.

Making Timely Payments

You're guaranteed to see your credit score increase if you pay your lease payments on time every month, assuming you're not harming your credit in other ways, such as late credit card payments. Even if you're late by five or 10 days, financial institutions likely won't report you to the credit bureaus. Most financial institutions have a grace period that allows you to make your payment a few days late. If you fail to make a payment within 30 days of the due date, your credit score will take a hit.

Lower Monthly Payments

Car lease payments are typically less than loan payments. While your payment itself doesn't have an effect on your credit, you stand a better chance of making your payment on time if you're paying $150 a month versus $300. If you find that regular car payments are stretching your budget thin, certainly consider leasing a car so that you can make timely payments and increase your credit rating.

Amount Owed

About 30 percent of your credit score comes from amounts owed, according to the Quicken Loans website. This is the amount of money owed to different accounts. Owing a lot of money to different accounts suggests that you're a high risk, and thus your credit score will take a hit. You're going to owe a lot less on a lease than an auto loan, which means your amounts owed won't take a significant hit. For example, if you purchase a $20,000 car, you owe $20,000 plus any interest added to the loan. If you lease a $20,000 car for 24 months, you may only owe $7,000 plus any interest added to the lease.

Credit History

Leasing a car means that you're establishing a new credit account, which counts toward your credit history and has a positive impact on your credit score. If you're considering purchasing a cheap car outright with cash or leasing a more expensive car, electing to lease will result in an increased credit score in the long run. The only time this isn't true is when you open too many accounts in a short period of time. For example, if you open five credit card accounts and lease a car within six months, your credit rating will go down. Opening several credit accounts in a short period of time represents risk.