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Can You Build Credit with A Debit Card?

Can You Build Credit with A Debit Card?

Money Management
SouthEast Bank| June 24, 2022
Can You Build Credit with A Debit Card?

Can You Build Credit with A Debit Card?

Debit cards cannot help you build credit. Debit and credit cards may seem interchangeable, and to some extent, they can be in their purchasing use, but only one of them helps you build credit: your credit card. 

Even if you use your debit card responsibly, the purchases made with it do not go towards building your credit score. Credit cards, on the other hand, will affect your credit; just make sure you pay them off in time in order to maintain a healthy score (and avoid costly interest!). If you are looking to build credit, here are a few reasons to put down your debit card and pull out your credit card for certain purchases.

Why You Can’t Build Credit with Traditional Debit Cards

Debit cards take money directly from your checking account when you use it to purchase goods or services, and they can also be used to take out cash from ATMs. Using a debit card means you are limited to what you have in your checking account. If you overspend, you will typically be charged an overdraft fee.

Traditional credit cards, like a store credit card or airline miles card, let you buy things on borrowed money, i.e., credit. Depending on the card, there are conditions when you use it, and there will be a limit on how much can be spent based on the credit line you receive. You must pay the money you spent on it back, plus any interest if you’ve accrued a balance. 

As credit cards work by lending you money on credit, using them will impact your credit score. If you pay on time every billing cycle and don’t overspend, it will help to build your credit. Not paying a credit card on time will negatively affect your credit score. Experts recommend that you keep your credit utilization below 30% of your total available credit. For example, if you have a limit of $10,000 on your credit card, you do not want to have a balance higher than $3,000 for a long period of time. 

Your credit card payment history is reported to the three major credit bureaus: ExperianTransUnion, and Equifax. These companies create and maintain your credit report which is used to determine your credit score. You can contact them to see your credit report, or many banks and credit cards are now providing free FICO scores each billing cycle.

Unlike credit cards, traditional debit cards aren’t tied to credit. The money you have in your checking account is the only money you can spend. A debit card is thus effectively the same as using cash from a credit perspective. Your debit card information is not sent to the consumer credit bureaus, so it does not appear on your credit report.

The Benefits of Debit Cards

Although you cannot build credit with a traditional debit card, debit cards do have several benefits. Namely, debit cards are designed to offer easy access to your funds, while keeping your spending in check. In many cases, if you try to spend more than is available in your account, your debit card transaction will be declined, or you’ll have to pay an overdraft fee.

In the next section, we’ll review a few of the best scenarios for using a debit card.

When to Use a Debit Card

Even if you want to build credit, there are times when you should use your debit card instead.

When to Use a Credit Card

Debit cards are good for avoiding overspending and debt, but they don’t help build your credit score or provide many additional benefits. Credit cards, when used responsibly, can help bolster your financial health and provide you with special perks. Some of the benefits of a using a credit card include:

Ways to Help Build Credit

Building credit or working on improving your credit score can seem daunting at first, but there are a few ways to make sure your credit score is in good shape.

Conclusion

Can you build credit with a debit card? Traditionally, no. Building credit starts with a credit card. While debit cards are necessary to have and helpful in many situations, they won’t help improve your credit score as they are tied only to your checking account, and your purchases are not reported to the credit bureaus. 

If you are looking to avoid credit cards but still want to enjoy rewards like cashback, you can explore checking accounts that offer reward debit card transactions. However, it’s often best to stick with the traditional route of separate credit and debit cards to make sure you don’t overspend and keep your finances healthy.


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Information contained in this blog is for educational and informational purposes only. Nothing contained in this blog should be construed as legal or tax advice. An attorney or tax advisor should be consulted for advice on specific issues.

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