How can I prepare my credit for leasing a car?

[Anonymous]

Hello everyone! Just joined the forums after reading so many to expand my credit knowledge. I am fairly new to the credit world, opened my first credit card in 12/2009 and my second in 05/2011. So if anyone can assist or provide advice, it would be greatly appreciated!

Around December of 2010 I went to the dealer to ask about a lease. To start off, my current scores are 752 TU FICO, 704 EQ FICO (724 EQ SW) and 754 EX (EQ SW).

I figured those were some banging scores to qualify for a lease. No baddies, all bills paid on time, low credit usage below 10%. My income was fine to them ($2,000 gross per month with only a phone bill expense of $120.) However when they did a soft pull to see where I am, I was thrown off by my credit limits. My score the dealer pulled, it was 732 EQ. Apparently my credit limits were too low to qualify for a lease.I have only two revolving accounts (soon to be a 3rd as an AU.), so far totalling $2,300. Yes that is extremely low but I never needed to increase in the first place.

Soon after I decided to increase my revolving accounts which now totaling $4,500. I realize I hate asking for a CLI because a hard pull is done every time. I'm aiming for next year (around March 2013) to try again for the lease. My question is, what can I do to prepare my credit to qualify for a lease? I was thinking of mixing my credit by taking out a secured personal loan with my CU of about $6,000-$8,000 using my savings as collateral and sit in my checking account to pay off at the end of the year. If that will not help, or if I were to not take the loan, to what limit will I need it to increase? It's a $28,000 car but with a high residual value I'll be paying $10-12,000 for the term @ 36 months for $300-$400 per month tax included given the down payment due at signing. I've search the forums for auto leasing but nowhere did I see credit limits involved to getting approved. Please help! I'm sure it can help people who are new to leasing as well!

[cdtotten]

I doubt that your credit limits are the sole reason you were declined. Do you rent, own, live at home? $2000 a month is on the low side for a $28k car lease, that could give the dealer pause, and if you have a thin credit file, that will work against you as well. Leasing is much more difficult than buying, so it could be a combination of many things.

[Anonymous]

I live with my father. And actually, I just checked my recent pay statment, I make around $2,300 gross per month =) (its a little extra which may or may not help). Really, the only expenses I have would be a cell phone bill, half the rent, the car loan, and the insurance. However, my income wasn't a problem to them. It was my total credit limit that worked against me, and maybe for the 2 year history that I have.  But that's why I will try again next year. I've been reading about credit lines and having a small credit line apparentIy is a higher risk. But I'd hate to waste hard pulls just to get a CLI. I can easily open an installment loan just to mix my credit up if I have to. I know lenders like to see mixes of credit.

[cdtotten]

Living at home is actually not a good thing when it comes to financing. The lender will assume that anytime your father wants to, he could kick you out and all of a sudden you have a large rent payment you weren't used to making. When it comes between having a place to live and paying your car payment, it's obvious which one would be sacraficed first.

You can disagree, but I still don't believe your low credit limits have anything to do with your decline... that's a cop-out. Plenty of people with minimal credit limits get approved every day. Your short history, low income, and housing situation I would find more important than everything  else.

Good luck whenever you reapply, but I would focus on purchasing a car (not leasing), and having a co-signer available if necessary. You may be able to avoid this by having a large down payment saved as well.

[Anonymous]

I see where you are coming from, but I don't understand how he can hypothethically kick me out if I pay half the total rent. He could kick me out still??

Maybe that I didn't mention my total expenses. Just the phone and rent would be $4-500 a month. Im pretty sure if I'm bringing home around $2,000 I can certainly afford a lease. Hell, awhile ago I was paying his car that was $345 a month for two years PLUS insurance comfortably, although his name was solely on it. Even with the interest being a whopping 25% (that's how bad his credit is.) I need to BUMP this topic. Maybe what I really need to ask is, do I have to have an auto loan or just an installment on my credit to be seen as a low risk for a lease? Because all I have is revolving like I mentioned. I could easily take out a loan just to sit in my bank account and set automatic payments to pay off plus whatever interest is added. There I'm not putting myself in debt. What can I do?

[teenastie]

Hello Nuyorican!

The auto dealers look for several different things when looking at a lease. Credit Score, Credit History (length), Credit Mix, and yes amounts of debt. It looks as though the dealer you shopped pulled an auto enhanced score. It was lower due to not having a large auto/installment loan. You have great credit! But to the bank you look risky as you have not handled "large ticket" loans.

It is not impossible to be approved for a lease:

My DWs first car was purchased by her parents when she graduated from HS she never had car credit. BUT she DID have several CC that had 5 figure CLs. They also took into account that she was a college grad and had been on her job for 6 years. She seemed less risky and was approved for a lease based on the outside factors even though she never had a auto loan. Typically, finance companies like to see some practice with large loans and long positive histories. Will a personal installment loan help? I don't know. Will having a car loan help? It's hard to say. Try getting your credit limits larger prior to the 1 year count down so the inqs don't factor into your Fico score in 2013. Nothing at this time is certain but paying off your bills and continuing to do well with your finances is a great start!

[Anonymous]

Thank you Teenastie! That helps a lot. Unfortunately the credit limit increases won't be an option due to the fact that they are Chase credit cards and I'm sure you know where I'm going with this. They are very picky with inquiries and asking to increase both my card limits I will surely get denied simply because I'm requesting credit too frequently to them. I had to have them reconsider the increase to my $1,500 card to $3,000 after my initial first increase on my $800 card to $1,500. I figured since each increase is a hard pull, I'd figured I would use an inquiry to just take out a large secured loan that I won't even spend, just to pay back. Only downside for sure to doing this is it will lower my AAoA. As for debt, well I'm not putting myself in debt if I'm just going to throw it in my savings and pay it back. But when the dealer pulled my score, they got a 732? If the dealer pulled that isn't it an auto enhanced score? 732 seemed pretty good to me! It was higher than the score I got off myfico! Surely an increase from 704 to 732 is an enhanced score!

[Anonymous]

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@teenastie wrote:

[snip]

My DWs first car was purchased by her parents when she graduated from HS she never had car credit. BUT she DID have several CC that had 5 figure CLs.

[snip x 2]

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Whoa, hold on. Not to hijack the thread too much - but she had 5-figure CLs on CCs as a highschool graduate? I can't imagine any 18/19 year old getting those kind of limits these days..

[teenastie]

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@Anonymous wrote:

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@teenastie wrote:

[snip]

My DWs first car was purchased by her parents when she graduated from HS she never had car credit. BUT she DID have several CC that had 5 figure CLs.

[snip x 2]

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Whoa, hold on. Not to hijack the thread too much - but she had 5-figure CLs on CCs as a highschool graduate? I can't imagine any 18/19 year old getting those kind of limits these days..

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LOL NO!

Her fist car was financed by her parents in 2000 and she had the car for 9 years. Within that time she was able to establish a long credit history that included large CCL. But did not consist of any Auto installments. The dealer made her feel as though they were doing her a favor approving her for a lease... But the fact that she is able to handle large credit limits and had stability on her job were the main factors that played into her approval for her lease IMO.

[Anonymous]

Ohh, okay! That makes sense, I was really confused about it. You'd think anyone who qualifies for 5-digit CLs could get a car loan easily.