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Why a Rental Car Could Hurt Your Credit

Jeanne Kelly

A client of mine recently received quite a shock when she checked her credit prior to applying for a mortgage. Her credit was normally quite good but had recently received some alarming negative items. After some research, she was surprised to discover that a recent car rental was the cause of her lower credit score.

There are many reasons to rent a car — perhaps for a vacation or to replace your car when it’s in the shop — but your credit might be at risk when you rent. Before you rent, be aware of how your credit could be affected.

Be aware of all upfront costs.

Prior to signing for the car, be sure to ask for an estimate of the costs you’ll be expected to pay. Rental fees add up fast (and they add up even faster if you take the rental company’s insurance), so get an estimate to avoid any surprises. Even fuel charges from not filling up the tank could be sent to a debt collector and that small amount could hurt your credit.

Even if your insurance company is paying for the rental (which sometimes happens if your vehicle was in a collision), be aware of what the insurance company will and will not cover. Some only cover a certain amount of rental per day; others may not cover the “extra” insurance; others might cut you off after a certain time and require you to pay if they think your car is repaired.

Make sure you are insured.

One of the biggest costs associated with renting a car is insurance or the cost of repairs if a rental car is damaged. Before you rent, get educated about the type of coverage you may already have (perhaps through your own car’s insurance or through your credit card). Find out what they cover and what they don’t. Insurance from the rental car company is high but you might be surprised at how much it costs to replace even a windshield chip or a small dent in a bumper.

If you damage a vehicle and don’t have insurance, a rental car company could send any repair charges to a collection agency as well, dinging your credit in the process.

Review the expenses after dropping off your car.

Some renters drop off their car while the car rental office is closed in order to catch a late-night flight, for example. But this can lead to a nasty surprise in the morning if the rental agency discovers damage that you don’t believe you caused. They have your credit card and all you have is your adamant insistence that you didn’t cause the damage. This could hurt your credit by increasing your credit utilization ratio.

Rental car companies are lending you an asset worth thousands of dollars and they’re lending it out usually based only on the fact that you have a credit card and a driver’s license. It’s no surprise that they are going to protect their investment and pass on any charges incurred to you. This might result in a higher-than-expected credit card charge or even a debt collector’s notice.

So if you are renting a car, make sure you’re aware of what they could charge and the condition of the car before and after you rent, and be sure to arm yourself with information so you know exactly what rights you have as a consumer. If you do this, your rental will go smoothly and there shouldn’t be an impact to your credit report.

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