Will My Credit Score Go Down After I Turn In a Leased Car? Returning a leased vehicle can be a straightforward process, but it’s natural to wonder how this can affect your credit score. Your credit score is a critical factor in your financial health, as it influences your ability to obtain loans, credit cards, and even rental agreements.
Will My Credit Score Go Down After I Turn In a Leased Car?
Returning a leased car can have an impact on your credit score, but the exact effect depends on several factors. Here’s how returning a rental vehicle can impact your credit score:
Factors That Influence Credit Score Impact
Payment History
On-Time Payments – If you have made all of your lease payments on time, returning the leased vehicle should have a positive or neutral impact on your credit score. Consistently paying on time demonstrates responsible credit behavior.
Late Payments – Late or missed payments can negatively impact your credit score. It is critical to make sure all payments are current before returning the vehicle.
Account Status
Closed Account – When you return a leased vehicle, the leasing company will report that the account is closed. Closing an account can impact your credit score, but it typically does not have a significant negative effect unless it significantly reduces your overall credit utilization rate.
Open Account – If you switch to another lease or finance a new vehicle, the new account will replace the old one, which could maintain or even improve your credit score if managed responsibly.
Credit Utilization
Debt-to-Credit Ratio: Canceling your lease can lower your credit utilization rate, which is the ratio of your current debt to your available credit. A lower utilization rate is generally positive for your credit score.
Available Credit: If the lease was your only major debt, paying it off and closing the account could slightly lower your credit score due to the reduction in total available credit.
Mix of Credit
Different Types of Credit: Having a mix of different types of credit accounts (e.g., credit cards, car loans, leases) can have a positive impact on your credit score. Returning a leased car without adding a new loan or lease can slightly impact this aspect of your score.
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Credit Impact After Car Lease Ends
Once you complete an installment loan or lease, the account eventually appears as “closed” on your credit reports. Even though the account is no longer active, payments associated with that account are reported for up to seven years. This includes on-time payments and late or skipped payments, and they can continue to influence your score during that time.
If you end your car lease and return the leased vehicle without incident, you’ll likely see the lease account reported as closed within a month or so. You’re not likely to see an immediate change in your credit score after returning the leased vehicle. Sometimes, it can take at least a month for changes to reflect on your credit reports and then impact your credit score.
In some cases, borrowers see a slight drop in points after closing an account, due to the credit mix category in the FICO scoring model. This category keeps track of how many active accounts are reported, and the more the better, as long as they’re in good standing. The FICO credit scoring model favors borrowers with varied credit histories and accounts, so if you close one of your only active accounts listed on your credit reports, it could hurt your credit.
However, in many cases, credit scores recover if you maintain a good payment history on the rest of your existing accounts.
Read Also: Can You Lease A Car With Bad Credit Score?
Steps to Minimize Credit Score Impact
Maintain timely payments – Make sure all lease payments are made on time to avoid negative marks on your credit report.
- Monitor credit – Monitor your credit report for discrepancies or errors after returning the leased car.
- Open a new credit account – Consider financing or leasing a new vehicle to maintain a diverse credit mix.
- Manage other debt – Continue to responsibly manage other credit accounts to maintain a healthy credit rating.
Close your account after paying off the lease
It is also important to note that a closed account may still have an outstanding balance. If you ended your lease without paying the full amount owed to the leasing company, the leasing company may close the account for nonpayment and you are still responsible for the remaining balance on the lease. There are some circumstances where a lessee is required to pay excessive wear and tear charges after returning a leased vehicle and if not paid on time, it could result in some negative reporting action.
“Closed” is not always synonymous with “paid” or “completed,” so it’s important to know the status of those accounts. If you still have an outstanding balance on a closed account, work to resolve it as quickly as possible. Closed, unpaid accounts can hurt your credit score and possibly be sent to a collection agency. Accounts in collections also have many negative impacts on your credit score.
Read More: Are There Any Minimum Credit Score To Lease a Car?
Final Thoughts
Returning a leased car can have several effects on your credit score, but maintaining timely payments and responsible credit behavior can mitigate any negative impact. By understanding the factors that influence your credit score and taking proactive steps, you can ensure that returning a leased vehicle has a minimal effect on your overall credit health.
