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How does vehicle leasing affect my credit score?

Credit scoring

If you are new to leasing a vehicle, then the likelihood is that you will have some questions about the impact of leasing on your credit history. Like any type of credit agreement, it is important to weigh up whether vehicle leasing is for you, this includes understanding any impact leasing may have on your credit score.

Credit scoring

Credit reporting agency Equifax defines a credit score as: “a tool used by lenders to help determine whether you qualify for a particular credit card, loan, mortgage or service.”

Most vehicle finance companies use a credit reference agency to determine how eligible you are for vehicle finance. These agencies will use the information on your credit report alongside any addition information submitted as part of your application, to calculate a score between 300 and 850 which represents your credit history. This score helps to inform the lender the type of borrower you are and the likelihood of you keeping up with your monthly repayments.

What credit score do I require to be accepted for vehicle finance?

In determining your suitability for vehicle finance, lenders consider various factors when making their decisions. These can include factors such as: employment history, age, living situation, income, status on the electoral roll, any other debts you may have, current and previous lending history and your ability to make regular payments on time.

To get an acceptance for vehicle finance, most lenders ask for a credit score which is ‘good’ to ‘excellent’. Using the Experian scoring system, a credit score of 700 or above is usually considered good, while a score more than 800 on the same range is excellent. However, it is worth considering that every vehicle finance lender uses a different scoring system-based risk and therefore you may be refused by one lender but accepted by another.

I have poor credit, what can I do?

If you have poor credit, you may find it difficult to get approved for vehicle finance. If you have been declined finance in the past, have been declared bankrupt, have entered into an Individual Voluntary Agreement (IVA) or have a County Court Judgement (CCJ), it is unlikely that you will be accepted for vehicle finance and vehicle leasing may not be the best option for you at this time.

Sometimes a low credit score does not always mean a poor financial history, it may be the case that you have little to no history of lending. For example, many young drivers have a low credit score as they have never previously taken out a credit agreement. This can make it difficult to get finance, as lenders tend to prefer lending to established borrowers who they can better assess the risk for paying back debt.

If your credit score does appear to be on the lower side, do not be too discouraged, there are ways to improve your credit score over time. Money Advice Service, Experian and Money Saving Expert all offer advice on how to build up a positive credit history.

There are simple ways to positively help your credit score such as ensuring bills are paid on time, keeping credit card balances low and disputing any inaccuracies on your credit history.

Can I check how eligible I am for finance before applying?

Our current panel of vehicle finance providers do not offer the facility to do a ‘soft search’ however Leasewell will run through an eligibility questionnaire with you over the phone before we propose you for finance to ensure you fit the criteria and are not unnecessarily proposed.

If I am refused finance, will this affect my credit score?

If you apply for vehicle finance and the lender refuses your application, this may have a negative impact on your credit score. This is because when you apply for credit, an inquiry is added to your credit report, this indicates that you have applied to take on new debt, and that potential new debt represents more risk, which can negatively impact credit scores. Therefore you need to ensure that vehicle leasing is the best option for you financially before applying.

If I am accepted for finance, will this affect my credit score?

If accepted, vehicle leasing can be an excellent way of improving your credit score, if monthly payments are made on time every month. This will show the finance companies that you are able to manage your finances, make payments on time and can essentially be trusted to borrow large sums of money. This can help with future credit agreements, whether that be mortgages, credit cards, loans or future vehicle financing.

What if my circumstances change during the agreement?

If your circumstances change during the contract and you are now struggling to make the monthly payments, it is important that you speak to the finance provider asap to discuss what options you have available to you and avoid a negative impact on your credit score.

I am interested in vehicle leasing, what do I do next?

If you are interested in a new car or van lease and would like to speak to someone, simply submit your details online or call us on 01656 337337 to get the ball rolling today!

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