Does Leasing a Vehicle Affect the Credit Score the Same as Purchasing a Car?

Leasing usually is the most expensive way to purchase a vehicle, and may ding to your credit rating. Purchasing a car can ding your credit rating too, depending on how you finance it. However, you can work a lease --- and sometimes and outright purchase --- to your advantage so that it improves your creditworthiness.

Identification

Leasing a vehicle almost always affects your credit score, because the dealer reports the account to the credit reporting bureaus as a loan. Purchasing a car only affects your credit rating when you use a loan to finance the vehicle. The credit bureaus do not track cash payments, because they do not help predict your willingness to repay borrowed money. A lease and loan affect a credit score in the same way.

Effect

Your credit score usually drops any time you take out a loan or lease. The dominant FICO scoring model weighs the average age of your accounts for 15 percent of your score, so a new account can drastically cut this if you do not have many accounts. Also, the lease or loan adds to your outstanding debt under the "Amounts Owed" category, which counts for 30 percent of your FICO score, and the credit application does a few points of damage. Overall, it takes about a year for a credit score to recover from a new lease or loan, according to Smart Money.

Benefits

If you have never had an installment loan before, a lease or loan can give your credit rating a significant boost, because using a mix of credit counts for 10 percent of your score in the FICO system. However, you must handle the account properly. Missed payments or worse, completely defaulting on the contract, can take over 100 points off of your credit score, which only ranges from 300 to 850 in the FICO model.

Tip

Avoid applying for any other accounts too soon after you take out a lease or loan on a car, because multiple inquiries or several new accounts within a year tends to lower your credit rating. This is where purchasing can help. Because a cash purchase does not affect credit, you can look for other loans, like a mortgage, without worrying that the lease or loan prevents you from getting a loan or increases the interest rate on it. Also, consider that a lease or loan adds to your monthly debt to monthly income ratio, which lenders often value as highly as a credit rating.