Leasing Beginners: What Credit Score Do I Need To Lease A Car?
Scoring a Vehicle Lease
During a break from your favorite show or the big game, you’re drawn to an attractive new ride with an attractive low monthly payment. And you think, "What Credit Score Do I Need To Lease A Car ?"
To your chagrin, the dealer kindly informs you the vehicle lease advertisement that brought you to the showroom is only for “Tier 1” customers and your credit doesn’t qualify you for that level. In other words, your credit score is not high enough to lock in that great deal.
The credit score you need to lease varies by manufacturer or dealer, but as a rule of thumb, you need at least 600 to 620 to even be considered for a lease. Even if you meet this threshold, you’ll want a higher score to get a lower monthly payment and better terms.
Tiers Of Credit
Dealers or their finance companies place you in a “tier” or classification based on your credit score. While the scores might vary by company:
- Tier 1
- Tier 2
- TIER 3
700 -740 & Above
660 -699 & Above
620 - 659
Some companies will put you a “Tier 0” if your score is north of 740 or in “Tier 4” if your score falls between 600 and 619.
Other dealers might rank customers by the “prime method”:
740 and Above
680 to 739
620 to 679
550 to 619
Whatever the label for the range, your score affects the terms of your lease – most importantly, that monthly payment. Manufacturers such as Nissan provide online estimators of your monthly payments which take into account, among other things, your zip code, the vehicle and the credit score
For instance, if you’re in the market to lease a 2016 Nissan Sentra S for 36 months with a cap of 12,000 miles per year and you live in the 30303 zip code (Atlanta, Georgia), here’s what you may pay based on the following credit scores:
740 and above (“Excellent Credit”)
700 to 739 (“Great”)
660 to 669 (“Good Credit”)
620 to 659 (“Fair Credit”)
600 to 619 (“Poor Credit”)
So, What Credit Score Do I Need To Lease A Car? and What About Errors in Your Credit Report
The adage “garbage in-garbage out” applies to credit scores. Firms such as FICO, or Fair Isaac Corporation, grade your handling of credit based on information in your credit report.
This chronicles your loans and credit cards, your payment performance or delinquencies, judgments, bankruptcies and inquiries or requests for credit. By reviewing your report and cleaning the mistakes, you can retrieve points that might lift you into a higher tier and a lower lease payment.
You can pull your report for free if you’re denied the lease or optimal terms and the dealer or finance company relied on your credit report. Also, you’re entitled one free one each year from the major credit reporting agencies – Equifax, Experian and TransUnion. The Federal Trade Commission says don’t contact each one individually.
Instead, go to AnnualCreditReport.com to ask for your yearly free reports.
If the error seems simple to correct, ask the reporting creditor directly to do so. Otherwise, submit your dispute to the credit reporting agencies. The Federal Trade Commission provides a sample dispute letter to the reporting agencies to guide you in getting the report fixed.
Send a copy of the report with the errors circled and copies of documents that you believe show the information is wrong.
For example, a driver’s license with your birth date or address can show you’re not the holder of that credit card account in collection or mortgage in foreclosure.
A copy of your monthly statement can tell the agency you paid on time. If the agency doesn’t resolve the dispute in your favor, ask the agency to note on your credit report that you dispute the particular information.
Good Practices Make Better Scores
If the credit report tells the truth about your history, you can still change the narrative of your credit and get into a better tier and lease deal. This means reducing what you owe.
- PRO TIP: Increase your monthly payments to pay off credit cards faster
FICO bases 30 percent of your credit score upon the amount of debt you're carrying. Lower balances translate to a lower credit utilization rate, which measures the ratio of what you owe on cards to your credit limits.
According to CreditKarma.com, credit gurus generally advise that you keep this rate lower than 30 percent -- which translates to a balance owed of under 30 cents for every dollar of credit limit:
Keep unused credit cards open. If you close accounts, you lose the available credit, but keep the balance owed.
Don't get new credit cards to build a higher credit ceiling. Both FICO and CreditKarma.com warn this strategy may backfire. By applying for credit cards, you generate "inquires" of your credit and can lower your score.
Higher credit scores come with a long history of responsible credit practices. As a result, keep credit cards you have held for a long time, perhaps years. Opening new cards can lower the average holding time of your accounts
In Conclusion: "Hopeless" Doesn't Mean No Hope
Don't give up on a car if you can't qualify on your own for a lease or a loan. There are alternatives to leasing, such as finding a co-signer, saving for a "starter" car that comes with a modest or low price tag, buying a car from a friend or acquaintance, or tapping into a 401(k) (if you have one) to buy a car.
You might even find companies that, if you have car insurance and a good driving record, will let you drive a free car a wrapped in advertisements. Use these options to build your credit score so you can get into the leasing arena.