Renting a Car? Using Debit Card Could Damage Credit Score

Debit cardsSome 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

?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, Calif., 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. 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.?

Source: MCT Information Services