How Renting a Car Could Affect Your Credit Score

Renting a car typically doesn't directly impact your credit score, as it doesn't require a hard inquiry. However, certain actions during the rental process can indirectly influence your credit standing.

1. The Payment Method: Most rental agencies place a temporary hold on your credit card for the estimated cost plus a security deposit. This can temporarily increase your credit utilization ratio, which may cause a minor, short-term dip in your score.

2. Debit Card Credit Checks: If you use a debit card, some rental companies may run a credit check to assess your risk. While often a soft inquiry (which doesn't affect your score), some may perform a hard inquiry, which can slightly lower it.

3. Unpaid Fees and Damages: The most direct path to a negative impact is failing to pay your bill or any subsequent charges for damages, tolls, or cleaning fees. The rental company will first attempt to collect this debt from you directly.

4. Debt Sent to Collections: If the rental company cannot collect the outstanding balance, it will likely turn the debt over to a collection agency. This is the critical step that leads to significant credit damage.

5. Reporting to Credit Bureaus: The collection agency will report the unpaid debt to the major credit bureaus. A collections account is a serious derogatory mark that can significantly lower your credit score and will remain on your credit report for up to seven years.

How Much Will Renting a Car Affect Your Credit Score?

Renting a car typically has a minimal, if any, direct impact on your credit score. However, several factors related to the rental process can indirectly influence your credit standing, so it's wise to be aware of them.

• Credit Inquiry. Some rental agencies run a credit check, especially if you use a debit card. A hard inquiry can slightly lower your score, while a more common soft inquiry will have no effect at all.
• Credit Card Usage. Paying with a credit card can increase your credit utilization ratio, a key factor in your score. Keeping this balance low helps maintain a healthy credit profile and avoids potential negative impacts.
• Unpaid Charges. Any unpaid rental fees, damages, or traffic violations can be sent to a collection agency. This negative mark would be reported to credit bureaus and could significantly damage your credit score for years.

How You Can Avoid Renting a Car Affecting Your Credit Score

Use a Debit Card

Many rental agencies accept debit cards, which can help you avoid a hard credit inquiry. Be aware that this option often requires a larger security deposit hold on your bank account and may involve more stringent identity verification checks upon arrival.

Opt for a High-Limit Credit Card

If using a credit card, select one with a high credit limit. The authorization hold can be significant, and using a card with plenty of available credit prevents your credit utilization ratio from spiking, which can negatively impact your score.

Ways to Improve Your Credit Score

Your credit score is dynamic, not set in stone, meaning you can always take steps to improve it. With consistent, positive financial habits, most people can see meaningful changes within just a few months.

• Monitor your credit reports. You can get free reports from the three major bureaus—Experian, TransUnion, and Equifax—to identify and dispute inaccuracies or detect identity theft.

• Make on-time payments. Set up automatic payments or reminders to ensure you never miss a due date, as payment history is the most significant factor in your FICO® score.

• Reduce your credit utilization. Aim to keep your credit utilization ratio below 30% by paying down balances or requesting a credit limit increase on your existing cards.

• Become an authorized user. You can be added to someone else's credit card account that has a strong payment history and low utilization to help build your own credit profile.

• Diversify your credit mix. Lenders like to see a variety of credit accounts, such as installment loans and revolving credit, to show you can manage different types of debt responsibly.

• Limit hard inquiries. Space out your credit applications and use prequalification tools when possible to minimize the number of hard inquiries on your report.

The Bottom Line

Renting a car typically won't affect your credit score. However, some rental companies may perform a hard credit check, and failing to pay your bill can negatively impact your credit history.

Frequently Asked Questions

Does the initial credit check for a rental car hurt my score?

Most rental companies use a soft inquiry, which does not affect your credit score. A hard inquiry is rare but can cause a minor, temporary dip.

What happens if I don't pay for damages to the rental car?

Unpaid damage costs or fees can be sent to a collections agency. This action is reported to credit bureaus and can significantly lower your credit score.

Can renting with a debit card instead of a credit card affect my credit?

Using a debit card for a rental typically avoids a credit check, so it won't impact your credit score. However, be prepared for a larger security deposit.