Can You Build Credit With A Debit Card?

Blog Post09/05/2016
Credit Advice

There’s little doubt that a debit card can make your life easier. You don’t have to remember to cash a check or hit the ATM just to do regular errands like buying groceries. But convenience is, by far, the debit card’s greatest asset. It’s less secure than a credit card, and you probably shouldn’t use one to make purchases online. If you’re wondering whether you can build your credit with a debit card, unfortunately, the answer is no.

How Credit Cards Affect Your Credit

Credit cards and debit cards are two very different things. A credit card is just that — an extension of credit. A lender has approved you and given you a card with a corresponding credit limit. When you make a purchase using your card, you’re borrowing money. For example, if you have a credit limit of $3,000, a $50 purchase would drop that limit to $2,950, and you now owe the lender at least $50. The company will typically tack interest on to that purchase as well.

Sometime within the next 30 to 45 days, the lender will report this transaction to the credit bureaus along with any others you’ve made, as well as the overall status of your account. The report will reflect how you’ve handled repayment of the money you’ve borrowed. Did you pay it all off before payment was due, effectively reducing your debt to zero? Did you make a minimum payment to keep your account current and in good standing? This information is the stuff upon which credit reports are built and credit scores are calculated.

Why Debit Cards Have No Effect

You’re not borrowing money when you use your debit card. You’re using your own money. A debit card is like a “plastic check” — a convenient tool that allows you to simply swipe at the cash register rather than write out a paper check and offer one or more forms of ID to prove you’re really the person named on the account.

When you swipe, the money for the purchase comes out of your bank account. It might happen immediately or within a day or two, but you haven’t borrowed anything. You haven’t used credit, so the transaction has no effect on your credit report, your credit score or your ability to handle debt responsibly. You can’t build credit by using your own money for purchases. The same applies to prepaid debit cards, which are identical to debit cards with one exception — you use your own money to buy the card.

Another Option

Building your credit might seem like an uphill battle under the circumstances, but you have some options. You might qualify for a traditional credit card with a cosigner, or consider a secured credit card to get you started. These cards allow you to make a deposit with the bank and have them issue you a credit card, usually in the same amount.

Unlike with a prepaid debit card, you’re not really using your own money with a secured credit card because your deposit remains intact unless you default on paying back what you charge. If this happens, the money on deposit goes toward your debt. Otherwise, you’re buying on credit when you make purchases because you do have to pay that money back separately from your deposit. The bank reports the activity to the credit bureaus, and you build credit.

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