Yes, You Might Need a Credit Check to Rent a Car
If you have a bad credit score, there are tons of ways that you’ll feel its effects in your everyday life. It will mean higher interest rates on your loans and credit cards, which cuts into your monthly budget. It might also mean paying more for utilities or at least needing to put down a deposit in order to secure them. It can even mean getting turned down for an apartment or a new job.
In short, having bad credit sucks. Luckily, there are things that you can do to help your score improve, like paying down your debts and making sure you pay your bills on time. Additionally, you should avoid any unnecessary credit checks, as they can negatively affect your score for up to two years. The damage won’t be that huge—more of a dent than a smoking crater—but when your score is in the dumps, every little bit can help or hurt.
Avoiding credit inquiries means not applying for loans or credit cards unless you absolutely need them, but it can also mean avoiding other things as well—or at least approaching them more cautiously. One of those things is renting a car. Depending on your circumstances, renting a car might mean needing a credit check, which could lower your score. And the answer to avoiding that check might surprise you.
How do credit checks work?
When a business checks your credit, it’s because they want to see whether you are a trustworthy borrower. While renting a car is a little different than taking out a loan or a credit card, the same basic rules apply. If you have a history of paying your bills and your rent on time, you are very likely to also pay for your rental car without any issues.
There are two types of credit checks that can be run: hard checks and soft checks. A hard credit check pulls a full copy of your credit report from one of the three major credit bureaus (TransUnion, Experian, and Equifax). Hard checks are also recorded on your report and will usually ding your score temporarily. In order for a hard check to be run, a company must have your express permission.
Soft credit checks, on the other hand, do not need your permission in order to be run. This is because soft checks return far less information than hard checks. And while soft checks can be recorded on your credit report, they do not affect your score. If you’ve ever received a “pre-approved” offer in the mail, that lender performed a soft check on your credit history.
With car rentals, they will perform a hard check on your credit. If you want to read more about the difference between soft and hard checks, check out our blog post: How are Soft Credit Checks Different From Hard Checks?
Renting a car with a debit card could mean a credit check.
On this blog, we write a great deal of personal finance advice. And one thing we consistently tell folks who lack good money habits is to avoid using their credit cards as much as possible. Credit cards with a good points or rewards plan can be a great financial tool if used properly, but the temptation to use them improperly and rack up a bunch of debt is too strong for many people.
So it feels a bit odd to say this but here we go: If you’re renting a car, you should do it with a credit card instead of a debit card. It’s only when customers are using a debit card that companies are going to (often, but not always) insist on running a credit check.
Debit cards mean additional risk for car rental companies.
Why do these companies insist on checking credit with a debit card? Well, most rental companies see debit cards as a bit of a red flag. With debit cards, they are much more likely to run into problems with insufficient funds to cover either the rental itself or additional costs that the renter might occur by damaging the car or forgetting to fill up the tank before they return it.
Still, this debit card red flag isn’t big enough to stop car rental companies from renting to debit card-users altogether. Instead, they simply need to run a credit check on the borrower before handing over the keys—in addition to a number of other small ways they try to disincentivize borrowers from using debit cards.
Beyond a credit check, renting a car with a debit card could mean needing additional ID, providing proof of insurance, having certain car classes made unavailable to you, and even certain age restrictions. In short: renting a car with a debit card is a hassle. If you need to rent a car, use a credit card.