There are both benefits and disadvantages to using a debit card to build credit. Learn about the benefits and drawbacks of using your debit card to build credit. A debit card is an essential part of a healthy financial lifestyle. Although you won't notice a significant impact on your credit score with a debit card, it is worth looking into.
Use a debit card for credit building
If you are struggling to establish credit, a debit credit card is a great choice. Unlike credit cards, debit cards do not charge interest if the balance is not paid in full. That means you can spend without worrying about damaging your credit score. With a debit card, you can stick to your budget easier.
The best thing about a debit card? It doesn't impact your credit score. This is especially true when you're trying to build credit quickly. Even though conventional debit cards do not contribute to credit scores, having a fully-equipped debit card can help to achieve financial stability and get ahead. A debit card will let you charge purchases to your account rather than to your credit card. It will also allow you to control your finances.
You will also pay less for debit cards than you would with credit cards. There are no ATM fees and you don't need to worry about high interest rates. You can even enter your PIN at some banks, which helps them save money on credit card processing.
Con of using a debit card to build credit
You can use your debit card to make payments, even if you don't have cash. It makes it much easier to pay for purchases even if you don't have enough money. This also means that you won't get overwhelmed by a large bill at the beginning your next billing cycle. A debit card is a great way for building good credit.
In that your credit score is not affected by the amount you spend on a debit card, it is distinct from a credit card. It won't impact your credit score. A debit card is a great way to improve your credit rating and receive the best interest rates.
Impact of using your debit card to build credit on credit score
If you don't have credit cards and are looking to build your credit, debit cards will be a great option. The cards let you limit your spending to what you can pay back. Credit cards are more restrictive and allow you to spend more than what you can afford. This is not good for your credit score because the interest can add up over time.
If you use a credit card to make purchases, your payments are reported to the three credit bureaus, Experian, TransUnion, and Equifax. These bureaus examine your credit history to determine credit scores. Many banks offer FICO scores at no cost to customers during every billing cycle. If you use a debit card to build up your credit, transactions are not visible on your credit reports.
While using a debit card to build credit can help your financial life, it will not increase your score. A credit card shows a lender that your financial responsibility is being met, while a debit card demonstrates that you have the ability to pay off debts. If you use a debit to build credit, the bank may close your account and report you to ChexSystems. This is an alternative credit reporting system.