Unlike a loan, a car lease allows you to use a car as your personal vehicle without having to purchase it. Because lease payments are typically cheaper than loan payments, leasing provides you with the ability to drive a car you may not be able to afford had you purchased it using traditional financing. Like an auto loan, however, a car lease appears on your credit report and influences your credit score.
Credit Report Entry
When you sign a car lease and drive away in your new vehicle, the dealership reports your account to the credit bureaus. It's up to the dealership which credit bureaus to file reports with, but once it does so, the entry appears as an installment account on your credit record. Each time you make a payment, the account trade line updates to reflect the activity. Paying your car lease on time each month has the same positive impact on your credit score as timely loan payments.
Credit Impact
Not everyone receives the same credit boost from having a car lease on his credit history. The degree to which any information on your report impacts your score depends not only upon the type of entry but on information from other creditors. While a summary of the factors that influence your credit score are publicly available, the precise credit scoring formula is a trade secret.
Payments you make to creditors and lenders make up the bulk of your credit rating -- 35 percent. Your car lease remains on your credit report for seven years after you pay the lease in full. Thus, your credit continues to benefit from the car lease long after you return the vehicle.
Warning
Missing just one payment on your car lease can have a disastrous effect on your credit scores -- costing you up to 80 points. If you miss more than one lease payment, your credit rating suffers further and the dealership will likely repossess the vehicle. Because you signed a contract agreeing to make payments each month for the full lease term, the dealership can hold you accountable for the unpaid portion of the lease by filing a lawsuit against you. If the dealership wins its suit, the credit bureaus enter a court judgment on your credit report. A court judgment brings your scores down even more.
Considerations
You may not be the only person who feels the positive or negative effects of a car lease on your credit report. If a friend or family member co-signed the lease for you, her credit also feels the impact. Like a loan, an auto lease appears on the credit report of both the borrower and the co-signer. Thus, your regular payments -- or lack thereof -- either boost your loved one's scores or cause lasting damage to her creditworthiness.
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