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Can You Use a Debit Card to Build Credit?

Written by Banks Editorial Team
8 min. read
Written by Banks Editorial Team
8 min. read

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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.

Get a Digital Credit Card
Access a revolving line of credit based on your cash flow, not your credit score, with the Grain digital credit card.

Debit Cards vs. Credit Cards: The Differences

Debit and credit cards can be used to make purchases at retail locations and online. However, there are some key differences between the two 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 double-digit 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 annual fees, 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. 

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. 

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. 

Which Debit Cards Can Help You Build Credit?

Traditional debit cards will not impact your credit score, but a few exceptions exist. You can use a debt product, like the personal line of credit from Grain, 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. Grain operates in the background while you use your debit card for everyday purchases. Grain will provide the funds for a debit card purchase through the line of credit you connect to your checking account. Grain will then use your checking account to repay the credit line. This strategy involves no work on your part to turn your debit card into a tool to improve your credit score. Grain has a 15% APR which is lower than most credit card issuers, but their autopay feature makes it less likely that you will ever pay interest on your line of credit.

Grain also has a different application process for its lines of credit. Instead of looking at your credit score, Grain looks at your cash flow when assessing your application. As a result, you can get a line of credit from Grain even if you have low or bad credit.

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 has five categories that impact your credit: 

  • Payment history (35 percent of your credit score)
  • Amounts owed (30 percent of your credit score)
  • Length of credit history (15 percent of your credit score) 
  • Credit mix (10 percent of your credit score)
  • New credit (10 percent of your credit score)

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

Get a Digital Credit Card
Access a revolving line of credit based on your cash flow, not your credit score, with the Grain digital credit card.

Open a Secured Credit Card

A secured credit card is easier to obtain than an unsecured card. These credit card issuers require a minimum security deposit fee. You could go this route and eventually transition to a traditional credit card. Once you make the switch, you can reclaim your security deposit fee.

Apps like Grain make it even easier to build credit, even if you prefer to use a debit card. It connects to your bank account, and the company’s autopay feature makes it easier to stay on top of credit card debt. In addition, you won’t need to get a separate card to build your credit. A debit card with Grain running in the background works just fine.

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% credit utilization ratio. Any percentage higher than 30% will hurt your credit score, but it’s optimal to get your credit utilization ratio below 10%. Paying debt on time and not overspending are two of the best ways to maintain a good credit utilization ratio. 

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 good payment history.

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 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. Grain does not run a credit check before giving you a line of credit, and you can get pre-approved in minutes instead of days.

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 accumulates. 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. 

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 every four months from Experian, Equifax, or TransUnion. 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 account. 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.

Get a Credit Line Instead to Build Your Credit

Consider a credit line of up to $1,000 from Grain to start building credit. Not only is the application process fast and easy, but your credit line is centered around your cash flow without a hard credit check.

Download the Grain app on your mobile device today to access all the features it has to offer. It can be found on the App Store. But if you have an Android, join the waiting list to receive an alert when it’s available on Google Play. 

Once you’ve created your profile and connected your primary checking account, you’ll be presented with a pre-approved credit offer. Simply accept your offer, complete identity verification, initiate a withdrawal for funds to be sent to the connected account and continue using your debit card as you normally would make purchases.

Get a Digital Credit Card
Access a revolving line of credit based on your cash flow, not your credit score, with the Grain digital credit card.

Disclaimer: Credit offer based on cash flow in the linked checking account and may require a credit check. All accounts are subject to ID verification and approval. See your Credit Agreement and Terms of Service for further details.

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