Does a Debit Card Build Credit?

If you’re like most people and you have a debit card, you might be wondering whether having a debit card will help you build your credit? We will answer this question in much detail below.

Does a Debit Card Build Credit?

No, debit cards do not build credit because the status of the checking or savings account connected to your debit card is not reported to the credit reporting bureaus (Experian, Transunion, and Equifax). As such, your debit card will not help you build credit. Debit cards are different from credit cards because the status of credit card accounts is reported to the credit bureaus, so they do help you build credit if you use them responsibly.

When you use your debit card, money is deducted from your checking or savings account, so you’re not borrowing money, and therefore your account status is not reported to the three major credit reporting bureaus (Experian, Transunion, and Equifax). On the other hand, when you use a credit card to purchase goods or services, you’re borrowing money from the financial institution that issued you your credit card. Most of the time, when you borrow money, your account status is reported to the three major credit reporting bureaus.

If you only have a debit card and have no credit cards or loans, your credit file may be empty and you may not even have a credit score because there is no information in your credit file from which a credit score can be calculated for you.

Although debit cards are a great way for making everyday purchases, you should consider getting a credit card because credit cards help you build your credit. Building good credit is extremely important because if you decide to take out a mortgage to purchase a home or you want to finance a vehicle, most lenders will want to see your credit history to see how you’ve managed debt in the past. If you haven’t built your credit, they will have no information based on which to lend you money and assess your credit risk. So, get a credit card in addition to your debit card and start building your credit today.

Should You Apply For a Credit Card Instead of a Debit Card to Build Your Credit?

If you’re over 18 years old, you should definitely consider opening a credit card account vs only using a debit card. This is so because once you have a credit card, your credit card account status will be reported to the credit bureaus. If you make your payments on time and keep your credit card balance, you will begin your journey of building good credit. Building good credit is extremely important in the United States because everything from buying a vehicle to taking out a mortgage to buy your first home depends on your credit history. Only using a debit card will not help you build credit. As such, you should have at least one credit card account to built good credit.

If it’s your first time applying for a credit card, you may be denied by some banks. If you’re not approved for a credit card, you should consider applying for a secured credit card. A secured credit card will help your credit just as would a regular credit card. The only difference is that to obtain a secured credit card, you will have to pay a security deposit, ranging from $200 to $5,000 and your security deposit determines your credit limit (how much money you can borrow on your credit card). The higher your security deposit, the more you can borrow. Typically, your credit limit is equivalent to your security deposit. So, if you place a $500 security deposit, you will be issued a credit card with a $500 credit limit.

Once you have your secured credit card in hand, you would use it just as would a normal credit card. You would use it to make purchases, and at the end of the month, you would need to make a payment to pay down your account balance. You should use your secured credit card responsibly because your account status is reported to the credit bureaus. So, make your payments on time and do not leave a large balance on your credit card. This is so because missing a payment can cause significant damage to your credit. Also, leaving a large balance on your card could lower your credit score. So, use it responsibly just as you would a regular credit card.

When Should You Use a Debit Card vs Using a Credit Card?

If you want to make a large purchase and you do not have sufficient funds on your account, you should consider using your credit card, For example, if you want to buy a desktop computer that costs $1,200 and you only have $900 in your checking account, you can use your credit card to make the purchase instead of overdrawing your checking account. After making the purchase, you can pay down your credit card gradually. That said, you should pay down the balance as promptly as possible to avoid paying too much money on interest. This is so because if you leave a balance on your credit card, you will be charged interest on that amount.

That said, if you have the money in your checking account and you do not want to pay interest fees, you can go ahead and use your debit card for such a purchase. Debit cards, although do not build credit, are still a great tool for avoiding getting yourself into debt. This is so because you can only spend what you have, you cannot borrow money on a debit card. So, debit cards are a great way to prevent overspending and landing yourself into debt. This is so because even though credit cards facilitate large purchases, it’s often too easy to rack up unpayable amounts of debt within a short period of time.

Nevertheless, if you want to build your credit and earn points while doing so, credit cards are a great tool for doing so, so long as you use them responsibly.

Frequently Asked Questions (FAQs)

1. Can you get a credit score with a debit card?

If you only have a debit card, and have no credit cards and no loans, you will not be able to get a credit score. To get a credit score, you need to have a credit card, loan, or borrow money and make payments on an account. Without these items, your credit report will not have any information in it based on which the credit bureaus can calculate a credit score for you.

2. Do Visa debit cards build credit?

No, most Visa debit cards do not build credit. In general, debit cards are not used to borrow money. As such deposit accounts linked to debit cards are not reported to the credit bureaus. Since they’re not reported, they cannot be used to build credit.

3. What is the fastest way to build credit?

The fastest way to build credit is to open a credit card, make payments on your credit card account, and keep your account balances low. Within just a few months of responsibly using your credit card, you could build a decent credit score in the low 700s. That said, you should make sure to make all your payments on time.

4. Can you go into debt with a debit card?

Although debit cards do not allow you to borrow money, if you overdraw your checking account, you could end up owing money to your financial institution.

5. How do debit cards affect your credit score?

Debit cards have no effect on your credit score because deposit accounts, such as checking accounts and savings accounts are usually not reported to the credit bureaus, therefore, they have no impact on your credit score.