See the results of our 2022 Personal Finance Study!
Can Renting a Car Affect Your Credit?
Sometimes, it can feel like just looking at someone the wrong way could end up dinging your credit score. And while that’s obviously an exaggeration, it is true that all manner of financial transactions and general behaviors can end up affecting your credit.
But is renting a car one of them? Well, if you thought this was one of those urban credit score myths, we have some news for you ...
Yes, renting a car can affect your credit score.
In short: Yeah. And what's more, the effect will probably be negative.
But here’s the good news: The damage to your score will be minimal. Only in rare circumstances would renting a car cause significant harm to your score. (More on that later in the post.)
Here’s more good news: Any effect on your score can be easily avoided using this one simple trick (that isn’t actually a trick at all). All you need to do is ... use your credit card to rent the car instead of a debit card.
Why you should rent cars with credit, not debit.
"Most rental car agencies want a credit card for the method of payment,” explained Todd Christensen, education manager for Money Fit by DRS, Inc. “It provides additional security in case of accidents or incidental damage to the vehicle.”
“They may think that because you aren’t using a credit card you may not even have one—perhaps because your credit is too low,” added Jake McKenzie, content manager at Auto Accessories Garage.
“This may cause the rental company to check your credit via what FICO calls a ‘hard inquiry.’ This inquiry can, in fact, ding your credit by five points or more.”
If you have good credit, then a temporary “ding” of five points or so won’t be much to worry about. Then again, folks with good credit probably have plenty of room on their credit cards to rent the car in the first place. They don't need to use a debit card!
For people with bad credit, things can get a bit dicier. Not only will they end up with a hard inquiry docking their already lousy score, but there’s the chance that their rental application could be denied—meaning they dinged their score for nothing!
If you have a credit card (that’s not maxed out), and you are renting a car, you should use that card to rent it instead of using a debit card. It’s really just that simple.
Except that it's not. After all, bad credit renters are also less likely to have a credit card that they can use to rent a car, leaving with little-to-no choice in the matter. Living with a bad credit score can be tough in any number of ways. It’s not surprising, then, that renting a car is one of them!
Here’s how credit scores work.
When you rent a car with a debit card and the rental company runs a “hard check” on your credit, that check is recorded on your credit report and ends up getting factored into your score.
Credit reports are documents compiled by the three major credit bureaus—Experian, TransUnion, and Equifax—that track your history as a credit user. Most information stays on your report for seven years, but some information can stay on your report for longer.
Your credit score is based on the information in those reports. And since information can vary between your different credit reports, that means that your credit score can vary depending on which report is used to calculate it.
The most common type of credit score is also the oldest: Your FICO score. This is a three digit number ranging from 300 to 850. The higher your score the better, with 680 being the rough cut off for “good” credit.
There are other types of credit scores. The three credit bureaus, for instance, got together to create a score called VantageScore. But since this score is also based on the info contained in your credit reports, it won’t often vary widely from your FICO score.
One way that renting a car could really hurt your score.
Recent credit inquiries are one of five major factors in how your credit score is calculated. This is the category that hard credit checks fall into. However, it’s one of the least important factors, which is why renting a car with a debit card will only ding your score.
The two most important factors are your payment history and your amounts owed. Your payment history makes up 35% of your total score and your payment history makes up an additional 30%. Together, they comprise a whopping 65% of your credit score.
Which brings us to the other way that renting a car could affect your credit.
“As with most accounts, if any fees or charges from the car rental agency are not paid, they may end up being sold to a collection agency, which would then show up on your credit report as a negative,” explained Christensen.
If you have a good credit score, then the odds are good that you don’t have any accounts that have been sent to collections. That’s because having a collection account added to your credit report can really hurt your score.
The reason that payment history is the number one factor in determining your score is that, well, businesses really like working with people who will pay their bills on time. So if you rent a car, it’s critically important that you pay all the related fees and expenses on time. Otherwise, your score could end up taking a major hit.
Author and Accredited Financial Counselor®, Todd R. Christensen, MIM, MA, is Education Manager at Money Fit by DRS, Inc. (@MoneyFitbyDRS), a nationwide nonprofit financial wellness and credit counseling agency. Todd develops educational programs and produces materials that teach personal financial skills and responsibilities to all ages. Having facilitated nearly two thousand workshops since 2004 on the fundamentals of effective money management, he based his first book, Everyday Money for Everyday People (2014), on the discussions, tips, stories and ideas shared by the tens of thousands of individuals and couples in attendance.
Jake McKenzie is the Content Manager at Auto Accessories Garage (@aagarage), a fast-growing, family-owned online retailer of automotive parts and accessories. He manages all written content for the website including research guides, product descriptions, and other informative articles. He also enjoys attending the annual SEMA Show, the premier automotive specialty products trade event held every November in Las Vegas. Jake often lends his opinions and expertise to a variety of online blogs, websites, and news sources.