Over the past couple of weeks, I have been helping a close friend get a new car. If you are a regular reader, you will remember that she is only interested in leasing a car despite my advice to buy. Despite my initial strong feelings against leasing, I have come to realize that there are situations that would make leasing a car a good situation – maybe not financially, but depending on someone’s life situation and priorities.
We took numerous trips to the dealerships in our area and scouted out the numerous cars that interested her. She has very particular tastes, so in many ways, it was quite easy to narrow the possible cars to a just a handful. Once we had four possible cars for her to lease, the next part was getting the right car to the right price. We started out with her second favorite car. We were clear that we didn’t want to buy anything that same day (which is an invitation for the dealership to give us a better deal), but just wanted to see what they could do for us. We didn’t want to be dishonest, but we did want to make them work for the deal.
As it turns out, they gave us a favorable ball-park figure, but most everyone is going to tell you what you want to hear. Almost everyone – the Nissan dealership were thousands of dollars higher in leasing costs for basically the same car. It only took us a couple seconds to shake and walk out when they weren’t willing to negotiate.
After all of the negotiation, we finally got the price that we wanted on her number one choice. They signed the paperwork and sent it off for the bank’s approval. It was the next day that my friend heard the horrible news. She wasn’t approved for the lease.
How You Can Have a Preferred Credit Score and Not Get Approved for a Lease
Ever since I have been in college, I have held and used a credit card regularly. I benefited from having older brothers who learned life lessons about 3-5 years before I had to learn them, so one of the few things I knew going into college was to get and use a credit card regularly. I actually heard that I should get two cards and use both regularly (and, of course, pay them off in full each and every month). So, that’s what I did and have done ever since then.
Unfortunately, my friend did not have the same childhood as I did. As it turns out, we found out that she only had one credit card that she didn’t use. Despite what would seem like financial prudence, she also has never had a car loan, student loan, or mortgage. By this time, I am sure all of my readers would suspect that she has a low credit score because your credit score is based primarily on your track record with credit. In other words, have you responsibly managed your debt in the past. If you’ve never had debt or a loan of any sort, it’s like hiring someone for a job without relevant experience. That person may perform well, but without a history of success and responsibility, you are going to be gambling on the outcome. It’s the same way with credit.
To add another unexpected turn in this story, my friend also has a good credit score. For reasons that I don’t feel comfortable sharing, she has a good credit score. It’s not a perfect score or above 800, but it’s fits the preferred rating by the dealership. So, while someone may have a good credit score and enough money in the bank to buy the car outright, it is still possible to be declined for a lease (or financing). The reason is that banks look not just at your credit score when determining whether they will lend you money (or something of worth), but your credit history, among other factors. She was turned down because of her lack of a history with credit.
What to Do After Being Declined for a Lease or Loan
If you have been turned down for a lease or loan for a car, you may feel demoralized. All of your hard work, like the work that I put in with my friend looking at and negotiating for cars, may seem like it is put to waste. It is a huge time investment to get a new car and it would be terrible to see all of that go to waste because of a poor credit history or credit score. As I have come to learn, it’s not the end of the line. You still have many options available to you.
- Get a Co-Signer: This is probably the easiest and most likely choice. All you have to do is to get someone else, who has a good credit history and score, to also sign the lease. This person is saying that if you cannot fulfill the requirements, it is up to them to fulfill the lease. This can have effects on a person’s credit score, so the person most likely to do so is going to be your parent or other relative.
- Build Up Credit History: Another viable option is to build up your credit in a hurry. You can do this with various steps. While I will elaborate on ways to build up your credit in a future posts, some places to start is to get a credit card (or two) that you use and pay off monthly. It’s also better to spread out the use among all of your cards and try to keep your balance below 10% of your credit limit.
- Private Financing: Another option would be to find your own financing and buy the car outright. In other words, find someone else to give you the money to buy the car and establish a payment plan where they are rewarded with interest for the money originally invested. To be honest, I considered doing this for my friend so that I could get a favorable interest rate, but I think I will use my spare cash on another investment soon, so it’s not an option for me.
- Boost Your Credit SCORE: While your credit history often influences your credit score, there are factors that influence your credit score that aren’t considered a part of your credit history. A great example is becoming an authorized user on another person’s credit card. If this person has a great credit score, it will boost your score. I’ve known several people that have witnessed this first hand.
- Don’t Get a New Car: While this may not be what you want to hear, another option when being turned down for financing a car is to avoid getting a new (or newer) car. It might be a sign that the most prudent answer is to repair the current car that you already have. Instead of paying for depreciation of a new car, you can use that savings and put it towards repairs on an older car.
Understanding how your credit score and credit history influences everyday situations like this is important to make smart decisions in order to establish a future with more flexibility. The last thing that you want is to sign all the paperwork on a new car and be declined for financing. As with all great financial advice, be pro-active with your finances to set yourself up for success in the future.