In general, you cannot build credit with a debit card. That’s because debit cards typically draw funds directly from your checking account, and those transactions are not reported to the credit bureaus.
Finding other ways to establish and build your credit is, however, a good idea. Having a solid credit history provides greater access to competitive financing offers. Additionally, your creditworthiness may be reviewed, say, when renting an apartment unit or applying for a job.
Read on to learn more about debit cards, your credit profile, and how to build credit.
Key Points
• Building credit with a debit card is typically not possible as transactions aren’t reported to credit bureaus.
• Debit cards pull funds directly from the account they are linked to vs. paying on credit.
• Credit cards help build credit by reporting borrowing and repayment activities to credit bureaus.
• Responsible credit card use, like timely payments, aids in establishing a good credit profile.
• Alternatives for building credit include reporting rent payments and becoming an authorized user on another’s credit account.
How Does Building Credit Work?
Purchasing goods or services on credit means you’re borrowing money that you don’t already have to make the purchase now. When you enter into this agreement with a lender, you’re accepting the responsibility of repaying the balance — typically, plus interest — over time.
The lender reports the new credit account under your identity to the credit bureaus, which are Experian®, Equifax®, and TransUnion®. As you make payments toward the debt, your lender will send routine updates to the bureaus about the account’s status and repayment activity.
Your borrowing and repayment data is what creates your credit profile and what’s used to determine your credit score. Keep in mind that all data is reported by your lender, whether positive or negative. For example, if you’re chronically late on your loan payments but make on-time payments toward a credit card, all of this information is reflected on your credit report.
Recommended: When Are Credit Card Payments Due?
Can You Build Credit With a Traditional Debit Card?
Although they’re a helpful financial tool, when your goal is building your credit from scratch, the pros and cons of debit cards should be closely considered. One major downside is that you generally can’t build credit with a debit card.
That being said, some financial tech companies do offer debit cards with a credit-builder feature that can help you build your credit. This feature is not typical of most debit cards though.
Still, debit cards are convenient in that they let you spend your money without carrying physical cash. They can also help you avoid racking up debt for purchases, and in some cases, it’s even possible to pay a credit card with a debit card.
Recommended: Does Applying for a Credit Card Hurt Your Credit Score?
Can You Use a Credit Card to Build Credit?
A credit card is a common financial tool that’s used to build credit. That’s because card issuers send credit card activity data to the credit bureaus.
A traditional credit card is a revolving credit line in which the issuer sets a maximum borrowing limit on the card. When using a credit card like a debit card, you can swipe your card to cover everyday purchases, like groceries or your cell phone bill. However, instead of those funds coming out of an attached bank account, you’re borrowing them — meaning you can spend with a credit card up to your credit limit, regardless of whether you actually have the money on hand at the moment.
At the end of each billing cycle, you’ll need to repay at least the minimum amount due, which is typically a portion of the total balance. Paying the minimum amount by the due date is sufficient to maintain positive payment data on your credit file.
However, this means you’ll accrue interest for rolling over a balance into the next billing cycle. When building your credit with a credit card, make sure you can afford to repay the full statement balance each month to avoid costly fees and deeper debt.
Recommended: What Is the Average Credit Card Limit?
When to Use a Credit Card vs. Debit Card
The differences between credit cards and debit cards when it comes to establishing your credit are stark.
When you’re first starting out with credit, consider using a credit card for a few smaller purchases, like your next cup of coffee, or a recurring expense, like a streaming subscription. Keeping your purchases small and manageable adds bulk to your credit history while allowing you to better track your spending. That way, you don’t end up with overwhelming debt.
Your debit card, on the other hand, can be useful to pay for bills that only accept payment from a checking account, or if you’d like to access your cash at an ATM. You’ll need to ensure you have the funds in your account before you swipe, but you don’t run the same risk of racking up debt that you do with a credit card.
Other Ways to Build Credit
Since building credit with a debit card isn’t effective, you can start building your credit using one or more of the strategies below. Although these are all viable approaches to establishing credit, be aware that the process takes time.
Become an Authorized User
Ask a family member or trusted friend who has good credit if they’re willing to add you as an authorized user on their credit card. As an authorized user, a credit check isn’t required, and you’re ultimately not responsible for making the payments on the account.
If the card issuer reports data for both the primary cardholder and authorized users on the account, this strategy can help with establishing credit.
Recommended: Tips for Using a Credit Card Responsibly
Report Your Rent Payments
An unconventional way to build credit without a debit card is reporting payment data, such as rent payments or utility bills. Ask your landlord and service providers if they’re willing to report your rent payment history to the credit bureaus.
Your rent payment data is then included in your consumer credit report so you can establish your credit with your on-time rent payments.
Use a Credit Card Responsibly
As mentioned, credit cards do help when it comes to building credit. You might consider applying for a secured credit card or a more basic card with lower eligibility requirements as you get started establishing your credit profile. This will require consistently making on-time payments and keeping your spending in check.
Once you’ve started to build up your credit through responsible behavior, you might even have the opportunity to earn rewards as an added bonus alongside building your credit. Some of the different types of credit cards offer rewards points, miles, or cash back for each dollar you spend on the card.
The Takeaway
Debit cards can offer a number of advantages, but building credit with a debit card is not typically among them. Although you can’t usually build your credit with a debit card, there are many other ways to get your credit profile started. This can include becoming an authorized user on someone else’s credit account, getting your on-time rent or other bill payments reported to the credit bureaus, or opening a credit card account and using it responsibly.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
Does debit card usage get reported to credit bureaus?
No, your debit card usage is not typically reported to the three credit reporting bureaus. Debit card transactions are linked to a bank deposit account in which you’re drawing funds from your own pool of money.
Why can’t you build credit with a traditional debit card?
You can’t build credit with a traditional debit card because while a debit card offers the convenience of cashless purchases, you’re not actually borrowing money. Instead, you’re pulling funds from a personal checking account that’s tied to the debit card.
Does a debit card affect your credit score?
No, using a debit card typically doesn’t affect your credit score. However, carrying a debit card can be a useful part of managing your finances.
Photo credit: iStock/Drazen Zigic
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