Leasing a car in today’s economy can be a daunting prospect, particularly given that vehicle prices have risen precipitously since the beginnings of the COVID-19 era.
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With that being said, one factor will almost certainly impact the terms of any lease on a new or used car: your credit score. Here’s why its important and how you can improve your score.
Credit Scores Are Heavily Weighed by Dealerships
As CarEdge noted, car dealerships factor your credit score into what is called a “money factor,” or the interest rate that will be applied to your potential lease. Typically, the higher your credit score (a “Tier 1” placement being ideal), the lower your interest rate will be on payments made throughout the lease period, regardless of the length.
If you have a bit of work to do in this regard, there are a number of ways — and one in particular — you can improve your credit score, no matter your current financial situation.
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A Good Credit Mix Will Improve Your Credit Score
According to Equifax, one often-overlooked way to “hack” your credit score in a positive way is to improve your credit mix.
What this means in simplest terms is diversifying the types of credit you are currently being extended by lenders. There are two primary types of credit: installment credit (a fixed amount borrowed and paid back in regular installments, such as a mortgage or student loan) and revolving credit (a line of credit from which you can draw funds and pay back at will, such as a credit card).
By ensuring that you have both types of credit at your disposal, you can improve your credit score. One caveat: Attempting to open too many new credit opportunities in a short time frame can actually damage your credit score, as hard credit inquiries will almost certainly take place. While there’s nothing wrong with spaced out hard inquiries on your file, too many too fast can be detrimental.
Other Important Credit Score Factors
Other major things to consider when seeking to improve your credit score, per the Consumer Financial Protection Bureau (CFPB), are ensuring you make your loan payments on time, every time; that you are keeping your credit balances as low as possible in order in order to show ideal credit utilization; and finally, fact-checking your credit reports.
Taking advantage of any number of popular services (Experian, Equifax or Transunion) to comprehensively review your credit reports is something that many borrowers often fail to do, at their peril. You have the right to dispute any errors on your credit report and doing so could drastically improve your credit score. The CFPB provides both instructions and a template letter to help guide this process.
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This article originally appeared on GOBankingRates.com: The Credit Score Hack That Could Save You Thousands on a Car Lease
