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Can You Use a Debit Card to Build Credit?

Written by Allison Martin

Allison Martin is a personal finance enthusiast and a passionate entrepreneur. With over a decade of experience, Allison has made a name for herself as a syndicated financial writer. Her articles are published in leading publications, like, Bankrate, The Wall Street Journal, MSN Money, and Investopedia. When she’s not busy creating content, Allison travels nationwide, sharing her knowledge and expertise in financial literacy and entrepreneurship through interactive workshops and programs. She also works as a Certified Financial Education Instructor (CFEI) dedicated to helping people from all walks of life achieve financial freedom and success.

Updated February 13, 2024​

11 min. read​

A healthy credit score is beneficial for many reasons. For example, you’ll generally have access to more competitive credit card and loan products, your auto insurance rates could be lower, and you could get approved for rental housing and utility services without making a hefty deposit. But maybe you want to build your credit profile and wonder if you can use a debit card to make it happen.

Traditional banks and credit unions generally don’t issue debit cards that impact your credit rating. However, there are some debt products that work in conjunction with debit cards to help you build credit.

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Debit Cards vs. Credit Cards: The Differences

Debit and credit cards can be used to make purchases at retail locations and online. However, the two have some key differences to be mindful of.

For starters, when you swipe your debit card, the funds are pulled directly from your checking account, so your spending is limited to the funds you have available in your account. Credit cards come with a preset limit, and the funds are loaned to you by the credit card issuer. Each month, you’ll make at least the minimum payment (a small portion of the balance and interest) to keep the account in good standing.

While the minimum payment is satisfactory for keeping your account in good standing, you should pay off your credit card balance as quickly as possible. Credit card debt can become an afterthought if you stick with the minimum payments, and high interest rates can turn credit card debt into a nightmare. The risk of incurring significant debt is one of the reasons people stick with debit cards instead of using credit cards.

Opting for a debit card instead of a credit card can also save you money on fees. Most debit cards do not have an annual fee, but it’s common to find them on credit cards. You could incur an overdraft fee for overdrawing your balance with a debit card, but credit cards have more fees, such as late payment fees and extra costs for exceeding your credit limit. By the time you exceed your credit limit, interest expenses will exceed any overdraft fees from a debit card.

As mentioned earlier, debit card activity generally isn’t reported to the credit bureaus, but this isn’t the case for credit cards. That’s the major perk credit cards have over debit cards. Both cards offer rewards programs, but some credit cards provide more mileage with their rewards, depending on what you want to buy and how you spend your money.

Another key difference between debit and credit cards is the level of protection they offer against fraud and unauthorized purchases. Remember, debit cards are tied to your checking account. So, if someone steals your card or card information and makes unauthorized purchases, the funds will be pulled from your own money. While you can dispute the charges and potentially get your money back, it may take some time and effort to do so.

On the other hand, credit cards offer more robust fraud protection. If someone steals your credit card or card information and makes unauthorized purchases, you can dispute the charges, and the credit card issuer will investigate the matter. In most cases, you won’t be held responsible for any fraudulent charges, and you won’t have to pay for them out of pocket.

Credit cards also offer additional perks and benefits that debit cards do not. For example, many credit cards come with travel insurance, rental car insurance, extended warranties, and other perks that can save you money and provide peace of mind. Some credit cards also offer cash back or rewards points for every dollar you spend. These perks can add up rather quickly and provide you with significant savings over time.

When it comes to building credit, credit cards are generally a better option than debit cards. Using a credit card responsibly and making on-time payments can help you establish a positive credit history. In turn, your approval odds may be greater when you apply for loans, mortgages, and other forms of credit in the future. Debit card activity is not reported to the credit bureaus, so using a debit card won’t help you build credit.

Wondering about gift cards? These cards are prepaid debit cards, so their activity won’t get reported to credit bureaus either. However, you need a loan, line of credit, or credit card to build up a payment history for the major credit bureaus.

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Is It Possible to Build Your Credit with a Debit Card?

Some financial technology companies offer debit cards that are designed solely for the purpose of building credit. This card is usually linked to your bank account, and you swipe it to make online purchases as you normally would. Then, at the end of every month, a portion of what you spend is reported to the credit bureaus each month.

This modified approach can help you build credit with a debit card. Traditional debit cards don’t let you build credit since you use funds from your bank account to make payments. Your payment activity only gets reported to credit bureaus if you use a line of credit to make payments. Transactions that take place in your checking account will not make it to your credit history. You cannot build credit if you do not have a loan or line of credit.

However, it’s important to note that using a debit card to build credit may not be as effective as using a credit card. This is because credit cards typically have higher credit limits than credit-building debit cards, which means that you can make larger purchases and have a greater impact on your credit score. Additionally, credit cards often come with rewards programs that can help you earn reward points or cash back for every dollar you spend as an added bonus.

If you’re considering using a debit card to build credit, it’s important to do your research and choose a card that is specifically designed for this purpose. Some financial technology companies offer debit cards that are linked to credit-building programs, but these cards may come with fees or other limitations.

Another option for building credit with a debit card is to use a secured credit card. This type of credit card requires you to make a deposit upfront, which serves as collateral for your credit limit. You can then use the card to make credit card purchases and build credit, just like you would with a traditional credit card. However, if you fail to make payments, the issuer can close the card and use your deposit to cover the outstanding balance.

Ultimately, the best way to build credit is to use a combination of credit cards and loans responsibly. This means making on-time payments, keeping your balances low, and avoiding late fees and other charges. If you’re not ready to use a credit card, financial products like a secured card, credit-builder loan, or credit-building debit card may be a good option for your financial situation. However, it’s important to remember that building credit takes time and effort, and there are no shortcuts or quick fixes.

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Credit-building Debit Card

Traditional debit cards will not impact your credit score, but a few exceptions exist. You can use a debt product that allows you to withdraw money instantly and access it using a debit card from a synced account. You’ll also remit monthly payments for this account, and payment activity is reported to the major credit bureaus – Experian, TransUnion and Equifax – to help build credit history.

This model is a backdoor approach to using your debit card to build your credit history. These cards are in the background while you use your debit card for everyday purchases. This strategy involves no work on your part to turn your debit card into a tool to improve your credit score.

Credit-building debit card issuers also have s a different application process. It’s possible to improve if you have a lower credit score since it’s not considered when determining if you’re eligible for a debit card.

Other Ways to Help You Build Credit

Before diving into ways to build credit, you should know how your credit score is calculated. Your FICO score, used by 90 percent of lenders and creditors to make lending decisions, is a three-digit number representing your creditworthiness.

Your credit report has various factors that impact your FICO credit score:

  • Payment history (35 percent of your credit score): It is an important factor that reflects how well you’ve managed your credit accounts in the past. Late payments, missed payments, and other negative marks on your credit report can have a significant impact on your score, so it’s important to make all of your payments on time.
  • Amounts owed (30 percent of your credit score): It reflects the amount of debt you have and how much of your available credit you’re using. A high account balance on your credit cards or other loans can negatively impact your score. To improve this factor, you can pay down your balances and avoid using too much of your available credit.
  • Length of credit history (15 percent of your credit score): It reflects how long you’ve been using credit and how well you’ve managed it over time. Generally, the longer your credit history, the better your score will be. You can keep your oldest credit accounts open and in good standing to improve this factor.
  • Credit mix (10 percent of your credit score): It reflects the different types of credit you have – whether installment accounts (i.e., personal loans, student loans, auto loans, mortgages) or revolving accounts (i.e., credit cards, lines of credit).
  • New credit (10 percent of your credit score): It reflects how many new credit accounts you’ve applied for recently. Applying for too much new credit in a short period can negatively impact your score.

Building credit can help you minimize costs and get better financing opportunities. You can use these strategies to improve your credit score:

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Open a Secured Credit Card

A secured credit card is a great option for individuals who are looking to build their credit score. These types of credit cards are often easier to obtain than unsecured cards, as they require a minimum security deposit fee. This deposit acts as collateral for the credit card issuer, which means that even if you have a poor credit history, you can still be approved for a secured credit card. Once you have a secured credit card, you can use it to make purchases and build your credit history. Over time, you may be able to transition to a traditional credit card and reclaim your security deposit fee.

Some secured credit card issuers make it even easier to build credit. They connect to your bank account and offer an autopay feature that makes it easier to stay on top of credit card debt. With these platforms, you won’t need to get a separate card to build your credit. Instead, you can use your debit card as usual, with the platform running in the background to help you build your credit score. This is a great option for individuals who prefer to use a debit card but still want to build their credit history.

For example, Current offers a secured credit card called the Current Build Card, which uses the funds you keep in your secured account to make sure you can only spend the funds you have. You can choose to set up Auto Pay to pay your balance twice per month or pay manually. However you decide to do it, Current will report these positive payments to the credit bureaus, helping you build or improve your credit score. On top of that, the mobile app also offers features like the Current Spend Account, with budgeting tools to help you manage your finances, savings pods that earn up to 4.00% bonus, and crypto investing. Visit the Current’s website to learn more or to open your free account.

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Keep Your Credit Utilization Ratio At or Below 30%

Your credit utilization ratio measures your borrowed money against the credit limit. For example, if you have a $1,000 credit limit and have borrowed $300 against your credit limit, you have a 30 percent credit utilization ratio. Any percentage higher than 30 percent will hurt your credit score, but it’s optimal to get your credit utilization ratio below 10 percent. Paying debt on time and not overspending are two of the best ways to maintain a good credit utilization ratio.

Another way to lower your utilization ratio is to increase your credit limit. If you have a good credit history, you may be able to request a credit limit increase from your credit card issuer. This will increase your available credit, which means that your credit utilization ratio will decrease even if you continue to borrow the same amount of money. However, it’s important to remember that a credit limit increase can also be a temptation to overspend, so it’s important to use your credit responsibly.

You could also pay off your credit card balance in full each month to keep your credit utilization rate low. Doing so also helps you avoid interest charges and keep more of your hard-earned money in your wallet.

Get a Credit Builder Loan

Credit builder loans help people with no credit establish their credit history and give borrowers with bad credit the opportunity to improve their scores. These loans have low principals, generally between $500 and $1,000. Most of these loans have easy requirements, even if you have bad credit. Some credit builder lenders will not run a credit check before giving you one of these loans. Credit builder lenders know you’re getting this loan because you want to improve a bad score or start building credit for the first time.

You can repay most of these loans over 6-24 month time frames, depending on the lender and the loan term you select. The lender will report your payment activity to the credit bureaus, giving you an easy path to building a good payment history.

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Become an Authorized User on Someone Else’s Credit Card

You don’t have to own a credit card to benefit from credit card activity. Becoming an authorized user on someone else’s credit card, whether it’s a friend or family member, lets you piggyback on their payment history. While this feature may sound great on paper, it’s a double-edged sword that can affect your credit score for better or worse. Your credit score will go up if the primary credit card holder pays the debt on time. However, your credit score will take a hit if the primary credit card holder falls behind on payments.

You should only become an authorized user of someone with good financial habits, and even then, you have to find someone willing to let you become an authorized user. Your best bet is to look within your circle of family, relatives, and friends instead of asking someone who you don’t know very well. You also have to know about their money management skills. Just because someone is trustworthy in other areas does not guarantee they are good with money.

Limit Your Hard Inquiries

Most financial institutions make a hard inquiry on your credit score when you apply for a loan or line of credit. A single hard credit check will only reduce your score by a few points. It’s easy to recover from that drop, but too many hard credit inquiries can negatively affect your credit score. You should only apply for credit and financing when you need them instead of on a whim. Some creditors only conduct soft credit checks, which will not impact your credit score.

Pay Your Debt on Time

Paying debt on time is the best way to improve your credit score. Payment history is the most significant FICO category, making up 35% of your score. On-time payments give lenders more confidence when giving out loans, and trimming your debt also improves your credit utilization ratio. Those two FICO categories make up 65% of your score. Other strategies will help you build on the momentum, but the bedrock of every good credit score is on-time payments.

Making on-time payments boils down to responsible use of your lines of credit. You should avoid spending more than you can repay at the end of the month. Overspending puts you into a debt spiral that can get worse as interest charges accumulate. Tracking every expense item will help you discover opportunities to reduce costs. If you haven’t watched Netflix for a few months, you may want to consider unsubscribing to save money. Monthly subscriptions happen in the background regardless of whether you use them or not.

If you have never monitored your expenses, doing this practice for the first time can change your personal finances. You will have an easier time paying debt on time and improving your credit score. However, reducing expenses has limited upside after the initial trimming and continued monitoring. At that point, raising your income will further impact your ability to pay the debt on time.

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Review Your Credit Reports

Your credit report has clues and insights that you can use to improve your score. It’s a useful companion on your quest to build credit, but your credit report has another advantage. The credit bureaus aren’t perfect, and your credit report may have errors. Disputing errors that are hurting your score can have an immediate impact and help you gain a few points, depending on the nature of the errors. You can get a free copy of your credit report from each major credit bureau once a year.

Consumers can save money and check their credit reports more often by spacing out their requests. You can request a free credit report from Experian, Equifax, or TransUnion every four months. If you ask Experian for your credit report, don’t reach out to them requesting another copy until the following year. Use the other two credit bureaus to get updated credit reports in the meantime.

Credit reports can also tip you off on suspicious activity in your credit file. If you find new accounts on your credit report that you do not recognize, it can be a sign of fraud. Someone may have your personal information and might be using it to open lines of credit. These activities can hurt your credit score, but that’s not the only concern if someone has your personal information. You can freeze your credit record at any time to stop people who have stolen your identity.

Most people don’t become identity theft, but it’s a risk to consider. Checking your credit report occasionally will keep you protected.

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