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.
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.
As mentioned earlier, debit card activity generally isn’t reported to the credit bureaus, but this isn’t the case for credit cards.
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.
Which Debit Cards Can Help You Build Credit?
There are also debt products, like the personal line of credit from Grain, that allow you to withdraw money in an instant 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.
Other Ways to Help You Build Credit
Before diving into ways to build credit, you should know how your credit score is calculated:
- 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)
Here are some tips for establishing a solid credit rating:
- Open a secured credit card and keep the utilization at or below 30 percent – 10 percent is even more ideal.
- Get a credit-builder loan and make timely payments for the repayment term.
- Ask a relative or friend to be added to their credit card as an authorized user. (The account should be in good standing and have a low utilization to benefit from being added as an authorized user).
As you work to build credit, review your credit reports regularly to identify areas that could use improvement. It’s equally important to make timely payments on your debts since payment history is the most significant component of your credit score. You should also only apply for credit on an as-needed basis to keep hard inquiries from dragging your credit score down. Hard inquiries are generated each time you apply for credit and could drop your score by a few points.
Get a Credit Line Instead to Build Your Credit
Consider a credit line of up to $5,000 from Grain to start building credit. Not only is the application process fast and easy, but your credit line is generated mostly from your cash flow, and you can get approved up to $1,000 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 AppStore. 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 credit offer. Simply accept your offer, initiate a withdrawal for funds to be sent to the connected account and continue using your debit card as you normally would to make purchases.
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.