The credit card is a phenomenon of the 20th century and has more to do with who we are than who we think we are. Without one – and its numbers and magnetic strip and expiration date – we can’t prove to the financial machine that we are who we say we are. This is why, even though your daughter pays her bills and runs a successful business, the machine won’t let her rent a car because without a credit card account number it can’t determine her credit worthiness. Fair Isaac Corp. offers insights on credit cards.
Hold orders: A car rental company might accept your debit card but is likely to put a hold on your card that is much higher than the price of the car rental. This translates to less access to cash for you as the amount held will not be available to you until all charges from the rental car company have cleared your debit account. See the Federal Trade Commission’s “Credit and debit card blocking”
Secured cards: If you need to rent a car and don’t have a credit card, you can apply for a secured card if you have enough lead time before your trip. Secured credit cards work as regular credit cards and are also reported to the three major credit bureaus.
“What separates secured cards from regular credit cards is their issuers require security deposits, starting at $200, and your credit limit matches the amount of the deposit,” says FICO. “If you have a debit card but have no time to apply for a secured card, ask the rental company how much of a hold it will require and be sure the available balance on your debit card account is enough to cover the rental reservation.”
No credit history: If you don’t have a credit history and want to be certain your car rental application will be approved, get a secured credit card with a large enough deposit to cover the rental. This will help you build “good credit” with low risk.
Secured cards work as regular credit cards and are reported to the three major credit bureaus. Increase your limit by adding more to the amount than initially deposited. The secured card serves as a savings account while you build a positive credit history.
Building credit: Charging and payment activity on secured credit cards is reported to the bureaus the same as regular credit cards, making it possible for people with no credit to build credit histories or people with bad credit to improve credit scores. Deposits act as collateral, guaranteeing approval no matter your situation.
Make sure activity on your secured card reflects positively on you: keep a low balance-to-limit ratio and make your payments on time.
You don’t have to use your secured card to improve your credit score. No balance on the card is reported to the bureaus as your being “in good standing” with the lender.
Apply for a secured card at your bank or compare and apply for one online. Most secured cards have annual fees and additional fees, including set-up fees, so it’s important to shop around for the best deal.