Does Leasing a Car Build Credit?

If you’re not going to pay for a car outright, whether you choose to lease or take out an auto loan is a decision that is yours to make. Leasing offers some financial benefits – typically lower monthly payments for a shorter amount of time. But buying has its own advantages, such as asset ownership.¹

As you mull the two options, there are some additional differences to take note of when it comes to leasing or financing a car:

If you lease:¹

• You pay a fixed amount of money for a fixed amount of time and then return the car.
• You are allotted a certain number of miles for the length of the lease – say 36,000 miles for a 36-month lease – and usually must pay for any mileage above the number established by your lease terms.
• You take on less financial obligation since you don’t have to pay for the car in full.
• But it’s harder to get out of a lease early since you can’t sell a car you don’t own.
• Expect additional costs at the end of the lease, such as mile overages, charges for wear and tear (scratches, dents, and dings), and disposition fees.
• At the end of the lease, you likely will need another car to drive, meaning you may need to lease or purchase another car. 

If you buy:¹

• Once the car is paid off in full, monthly payments end, and you own the car for as long as you want.
• You might be able to make any modifications to the car that you want, such as adding a remote start, painting it a different color, or installing a storage rack on the roof.
• You might sell the car even if you haven’t paid off the loan, but you’ll still need to repay the lender.
• There are no mileage restrictions.

With good financial habits, like on-time payments, you may be able to build up your credit score with an auto lease just as you can with a mortgage, personal loan, credit card, or other similar lending scenario.

Here’s why: The lessor, or the person or agency you’re leasing the vehicle from, should report your monthly lease payments to the three major credit bureaus – Equifax, Experian, and TransUnion – just as another creditor would with loan or credit card payments. This means your lease payment history will appear on your credit report and get factored into your credit score calculation. 

If you make all of your lease payments on time, your credit score will benefit, same as it would with a loan, credit card, or any other form of debt. Payment history accounts for 35% of your total FICO score.²

Furthermore, a lease arrangement is an installment loan – a debt that gets paid back in installments, typically via monthly payments. Adding an installment loan to your credit profile may enhance your credit mix, a credit-scoring factor that focuses on the variety of credit accounts you have opened. That might include credit cards, mortgages, and student loans, for example. Credit mix accounts for 10% of your FICO score.²

Just as leasing a car may help build your credit, it might also adversely affect your credit. Failing to make the required monthly lease payments, for example, is akin to missing payments on other debts with lenders and creditors. While payments just a few days late typically won’t hurt your credit – this goes for auto leases as well as other forms of debt – payments that are at least 30 days delinquent and debt that has defaulted usually will.³

It’s rather uncommon for those leasing a car to get too deep into payment delinquency, based on an Experian report from the fourth quarter of 2021.⁴ Only 0.95% of auto lease payments were 30 days late, and 0.46% were 60 days past due. However, this could be due to the fact that leasing generally requires better credit than buying,⁵ and a better credit history usually signifies a history of on-time payments.²

If a lender sees a default on a past lease, that may preclude them from entering into a financial arrangement with you on another lease. But just having a low credit score – anything under 600 – shouldn’t deter you from trying to lease a car, assuming leasing is the better option for your needs. According to the same Experian data, about 17% of new leases in the fourth quarter 2021 were given to people with credit scores of 660 or lower. That percentage has been quite consistent over the past three years – 17.25% in Q4 2020 and 19.44% in Q4 2019.⁴