Using a debit card for a rental car can be a mistake

Tim Grant
Pittsburgh Post-Gazette

Some customers prefer to use a debit card rather than a credit card to make purchases as a means of limiting debt and managing their finances.But the choice could backfire when it comes to renting cars.

Some car rental agencies, such as Budget Rent a Car, have policies that allow them to run credit checks on customers who use debit cards.

And that inquiry could cost the customer some credit score points.

“It’s very standard to use a credit card for those purchases, and when you don’t, they may run a credit check to make sure you are a trustworthy customer,” said Julie Myhre, a senior manager at, a San Francisco free comparison website for credit report monitoring, identify theft and other financial services.

“When they do a credit check, they might not even rent to you if the credit check comes back negative. Meanwhile, you have had a hard inquiry on your credit report.”

So-called hard inquiries occur when a potential lender is checking out someone who has applied for credit.

Having a large number of hard inquiries — usually more than six — will chip away at a credit score because it signals high risk.

People with six or more inquires on their reports are eight times more likely to declare bankruptcy than people with none, according to FICO, a leading credit scoring agency.

While most consumers are well aware that missing payments, maxing out credit cards and applying for too much credit in a short time frame will take its toll, there are several other ways credit scores can be damaged that are less commonly known.

“By far, the most common thing I see hurting credit scores is unpaid cellular telephone bills,” said Robert Rasmussen, chief operating officer of Balboa Capital Corp., an Irvine, California, firm that specializes in lending to small firms.

He said much of the $250 million in annual small business loans that Balboa Capital does is guaranteed by the owners, and that requires an evaluation of their personal credit.

“Some people will abandon their cellular phone contracts and leave balances on there,” he said. “It could be $50. It could be a couple of hundred dollars. But what happens is it ends up in collections, the collection ends up at the top of their credit report, and it affects their credit score.”

Other unpaid bills that commonly pop up, he said, are cable bills and satellite TV bills.

“Some people end up leaving the state and will abandon their bills,” he added. “If they run into financial difficulty, they will let go of discretionary things, thinking it won’t matter. But that’s not the case.”

Myhre said that even if a car rental company runs a credit report on customers using a debit card, it will not likely be detrimental to a score because inquires count for a low percentage of the total score. But the hard inquiry could lower the score just enough to bump someone from one credit rating to another, especially if that person is on the borderline.

“If a car rental company does run a credit report on you, they will tell you,” Myhre said. “In most instances, they will tell you because you have to sign something giving them permission.”

Even if you don’t get dinged at the car rental agency, an unpaid parking ticket picked up while driving that car could potentially do more damage to a credit report, Myhre said.

Some cities — including New York, Chicago and Pittsburgh — will send unpaid parking tickets to collection agencies.

“At the end of the day, cities want to get paid as well,” she said. “The best way to avoid this is to pay your parking tickets on time or work out a payment plan and get that bill taken care of immediately. You don’t want it going to collections.”