The Importance of Credit Scores in Car Leasing: How to Improve Your Chances

Nationwide Vehicle Contracts explores the importance of a good credit score when leasing a car.

Having a good credit score is crucial to securing a car lease agreement. A credit score isn’t just a label; it’s evidence to a funder that you’re responsible with your money and will be able to cover a long-term lease agreement.

The better your credit score, the more likely you’ll be to secure a car lease agreement.

In this blog, we’ll unravel the link between credit scores and car leasing and how you can improve your credit score.

Understanding Credit Scores and Their Relevance in Car Leasing

Credit scores serve as a representation of an individual’s creditworthiness. They reflect someone’s financial history, including payment habits, outstanding debts, and credit utilisation.

There are three credit reference agencies in the UK, Equifax, Experian, and TransUnion. They all compare credit slightly differently, but all provide a visual scale from ‘very poor’ to ‘excellent’ to give you an idea of your credit score.

Financial lenders and car leasing companies rely heavily on credit scores to assess the risk of a customer. A higher credit score increases the likelihood of getting accepted for a lease deal and can result in more favourable terms.

The Impact of Credit Scores on Lease Approval

In the UK, credit scores are pivotal in determining whether you’ll be accepted for a car lease. Car leasing companies carefully consider an individual’s credit score to mitigate the financial risk they undertake.

While specifics can vary among finance lenders and leasing companies, a general guideline is that you need at least a ‘good’ credit score to secure a lease agreement.

The higher your credit score not only improves the chances of approval but also increases the likelihood of getting attractive lease terms.

It is worth noting that no lender will decline you for vehicle finance based on your credit score alone. Other factors come into play, like your ability to make regular payments and any other debts you might have.

Monitoring and Understanding Credit Reports

It’s essential that you regularly review your credit reports for accuracy and potential errors.

When you get your report, read through it and look for discrepancies in personal information, account status, or payment history. Pay special attention to negative items such as late payments or unpaid debt. If these show up, resolve them as quickly as possible.

If you plan on taking out a car lease agreement in the near future, it’s worth regularly checking your credit report to ensure it’s in order.

Credit reports can be complicated if you’ve never seen one before, so here’s what you’ll see and how to understand it:

• Personal Information – This is information gathered by you, your creditor and/or other sources. Each source may report your details slightly differently, which may result in slight variations of your name, address etc. Make sure all this information is correct.
• Accounts – This involves revolving credit accounts and instalment loans, which is information from your creditors to the credit agencies. This may include up to two years of your monthly balances on an account if it’s been reported by your creditor.
• Collections – When an account becomes past due because of debts, it becomes a collection account. This can be reported as a separate account on your credit report, which harms your score.
• Public Records – Bankruptcy, an Individual Voluntary Arrangement (IVA), and any County Court Judgement (CCJ) will show on your credit report.
• Credit Inquiries – This is a request for credit report information from a company which stays on your credit report for two years. Soft inquiries are usually initiated by others, such as your lender conducting a review of your credit account.

How to Improve Credit Scores

There are various ways you can improve your credit score, such as:

• Pay bills quickly – Ensure all bills, including credit card payments, are paid on time. Late payments can have a negative impact on your credit score.
• Reduce credit card balances – Keep your credit card balance below 30% of your credit limit, as high credit utilisation can impact your credit score.
• Diversity credit types – A mix of credit types, such as instalment loans and credit cards, can be beneficial.
• Avoid closing old accounts – Keep your accounts because the length of your credit history matters. If you no longer use an account, try and use it for small purchases to maintain their positive impact.
• Regularly monitor your credit report – Check for errors or unauthorised accounts and dispute inaccuracies quickly.

Long-Term Benefits of Good Credit Scores

A good credit score will not only help you secure a car lease agreement but can influence your whole financial situation. It can help you secure favourable interest rates on loans and mortgages and increase your ability to access higher credit limits.

You’ll also be able to qualify for premium rewards cards that offer perks like cashback, travel benefits, or lower fees.

Furthermore, landlords and employers might check your credit score, so a solid score could positively impact your job prospects and housing situation.

Alternative Lease Options for Lower Credit Scores

If you have a poor credit score, you’ll unlikely be accepted for vehicle finance. However, there are a few options out there if you’ve got bad credit.

Consider a joint application, which is when two people apply for car finance together. In this scenario, both applicants’ incomes are considered, and both are responsible for monthly payments. Credit scores still matter here, and you’ll also need to live at the same address as the other person.

You could also use a guarantor, which is a third party that’s responsible for the car finance payments if the main applicant defaults. In most cases, a guarantor must be a family member with a strong credit file.

For more information, check out our guide, Can I Lease a Car with Bad Credit?

Worried about your credit score now? Don’t worry, Nationwide Vehicle Contracts have plenty of advice and resources available, such as our interactive finance eligibility checker and our guide How to Apply for Personal Vehicle Finance. 

We are also one of the UK’s largest car leasing brokers, offering a range of leasing services to suit your every need. If you’re looking for a lease car as soon as possible, check out our Fast Lease service, or if you’re looking to save a few pennies, check out our Used Car leasing deals.