Can I Lease a Car With a Charge-Off?

Leasing a car provides you with the freedom to exchange your vehicle every lease term. In addition, if you choose to lease rather than buy, your monthly payments will be considerably lower. For some individuals, however, a past credit card charge-off can stand in the way of a new car lease.

Facts

One of the requirements car dealerships have for individuals hoping to lease a vehicle is that the consumer pass a credit check. A credit card charge-off appears on a credit check and demonstrates to the dealership that the individual has failed to make regular payments to a creditor in the past -- making him a higher risk for the dealership. Thus, some dealerships will refuse to lease a vehicle to individuals whose credit reports reflect a past charge-off.

Significance

How badly a credit card charge-off hurts your credit rating depends on a variety of factors. The more recently the charge-off occurred, the more impact it has on your credit score. If a collection agency purchased the charged-off debt and added a collection account to your credit report as a result, this also adversely impacts your credit rating. Accounts in positive standing, such as current loans and credit cards that you pay on time each month, help offset the derogatory effect of a past charge-off.

Time Frame

The Fair Credit Reporting Act notes that most derogatory entries on your credit report can only remain there for seven years before being removed by the credit bureaus. Thus, if your old credit card company charged off your debt more than seven years ago, all evidence of the charge-off has already been purged from your credit file -- this includes any collection accounts that appeared on your credit report following the charge-off.

Considerations

Different dealerships have different policies regarding credit checks. While some car dealerships want to review your credit report in its entirety, others will only check your credit score before making a leasing decision. If your charge-off occurred several years prior and you have practiced responsible debt management in the years since, a car dealership that only reviewed your credit score would have little reason to suspect a charge-off lurking within your credit file.

Prevention/Solution

If the first car dealership you apply for a lease with turns you down, that doesn't mean that all car dealerships will turn down your request for a new lease. Different car dealerships have different methods of evaluating you for financing or leasing a car. Individuals with damaged credit may also consider finding a co-signer to fill out a joint lease application. The presence of a co-signer reduces the car dealership's risk and makes a car lease more attainable for those with a damaged credit history.