Building credit with a debit card: is it possible?
If you’re reading this article, you might wonder if building credit with a debit card is possible! Indeed, this doubt can arise for those starting to take responsibility for their own finances.
However, more than answering these questions, we will teach you more about how to build credit. See the following post!
Do traditional debit cards help build credit?
Indeed, credit and debit cards are very similar in use. With these, you can purchase in physical or virtual stores, pay bills, withdraw money, and access banking services.
However, the big difference is what happens when you decide to use one type of card or another. When you buy with a credit card, you are not spending your money.
In fact, it’s like you’re using your bank’s money. Then, at the end of the month (or every cycle), you will refund the credit given by the banks by paying the card balance.
Banks hold you responsible for using credit when you pay your balance on time. This makes you improve your credit score.
In case of delay, the banks consider that you do not use the credit just like that. This will make your credit score lower.
Traditional debit cards work differently. When you use them, your money is used to pay the bills.
Thus, it leaves your current account and is transferred directly to the account of the store/company where you purchased a service/product.
Note that in this transaction, credit was not used. So you’re not generating information about how well (or poorly) you use credit.
As such, using traditional debit cards does not allow you to improve your credit score. However, that’s not all you need to know about debit cards.
But is it possible to build credit using a debit card?
Everything we’ve discussed so far is extremely valid for traditional debit cards. In fact, you cannot use traditional debit cards to build credit.
However, modern card options on the market already allow you to build credit. This is an increasingly popular innovation.
In addition, it is an excellent option for those who cannot access good credit cards. These new cards use a very interesting technological system.
Imagine you have one of those modern debit cards, and you’re going to use it to make a $50 purchase.
Upon receiving the purchase request, the bank’s system will check if you have a current account balance available to make the purchase.
If you have one, the bank will create a kind of “microcredit” in the amount of your purchase (in our case, $50). Then you will pay off your debt as if you were using a credit card.
After the purchase, the bank will withdraw the amount from your checking account. And so you will refund your card issuer.
This simple technological implementation allows you to improve your credit score. A good example of this card type is the Extra Debit Card, which appeared on the market in 2020.
Other options to improve your credit score
In addition to modern debit cards, there are other resources you can use to build up credit. These are famous and traditionally used by those without credit cards.
Some combine these different strategies and achieve excellent results. Find out more about each of these below:
Use secured credit cards
You can still get credit cards if you don’t have a good credit score. The simplest way to do this is to take out a secured credit card.
These work like regular credit cards. The only difference is that these require a secured deposit. Thus, before you can use them, you must make a cash deposit.
The amount deposited will be retained by the bank. If you don’t pay the balance by the deadline, the bank will use the deposit money to pay off your debt.
Some card issuers will refund deposited money if you make all payments on time. Typically, the required guaranteed deposit amount is a minimum of $300. Some good examples of this type of card are:
- OakStone Gold Secured;
- Chime Credit Builder Visa®;
- Discover it® Secured;
- Capital One Quicksilver Secured Cash Rewards;
- Capital One Platinum Secured.
To build credit, you don’t necessarily need to apply for a credit or debit card. In fact, you can simply become an authorized user.
If you know someone with good credit, you can ask them to make you an authorized cardholder.
In this way, the cardholder’s positive record can also cause their credit score to improve.
So, make sure there is someone in your family with good credit who can issue you an authorized card.
Pay your loans on time
We do not recommend taking out a loan just to add information to your credit history. In fact, that wouldn’t be a very smart strategy.
However, you must make your payments on time if you already have a loan. This simple commitment can send your credit score skyrocketing.
Regardless of the chosen strategy, believing that you can improve your credit is fundamental.
We hope that this article has helped you! Now, it is time for you to get started with your credit-building journey! So thanks for reading and good luck!
