Do Debit Cards Build Credit? How Your Debit Account Affects Your Credit Score

Tylene Welch  | 

If you’re interested in purchasing your first home or taking on a car loan, you know the importance of a strong credit score. But…maybe you were declined for a line of credit and you’re wondering how to bring that score up without a credit card. Does using a debit card build credit?

Unfortunately, you cannot directly build credit with a debit card. There are, however, many ways to build your credit score. In this article, we’ll answer some basic questions about credit, and explain the different ways in which debit and credit cards can affect your score.

Why Debit Cards Don’t Affect Your Credit Score

To understand why debit cards don’t affect your credit, you have to understand how debit and credit cards work, and how they are different.

As you may already know, debit cards exclusively use money from your bank account. So if you’re out of money, your debit card gets declined when you try to use it. The exception being unless you opt-in to overdraft protection, which is when the bank loans you just enough money to cover the purchase you’re trying to make. That aside, a debit card only uses the money you currently have, so there is no loan involved.

On the other hand, credit cards exclusively use loaned money. When you apply for a credit card, the lender uses your credit score to decide whether or not to trust you with a line of credit. Your FICO score will often determine whether or not you’re approved for a credit card, and how much your credit limit will be. When you use this card to make a purchase, you’re using borrowed money. Your ability to pay back the loan will affect your credit score.

Your FICO score is the credit score given to you by the Fair Isaac Corporation. It’s a representation of how responsible you are with loaned money. A high score of above 700 generally means that you have loans and bills but you’re diligent about paying them back. A low or nonexistent credit score means you either haven’t taken out any loans to show that you can manage them responsibly, or it means you have late payments and unpaid debts on your credit report.

Debit cards don’t affect your credit score because using them poses no risk. The money is yours and doesn’t provide an accurate example for how responsible you are with loaned money. However, you can indirectly use your debit card to help build credit or increase your score. We’ll cover this shortly.

How Credit Cards Affect Your Credit Score

Your FICO credit score is based on a few different factors. About 30 percent of your score is dependent on the amount you owe on credit and your total debt. Credit cards make up a large chunk of your credit score because they provide the most accurate picture of how well you manage your debts. If you’re maxing out credit cards or you’re late on payments, this is going to have a damaging effect on your credit score.

On the plus side, simply owning a credit card can positively affect your credit score, even if you don’t use it. If you want to increase your credit score with credit cards, here’s how to do it:

If you don’t already have a credit card, get approved for a line of credit (preferably one with a good rewards program). Then, use it for purchases you know you can pay off immediately. Never use more than 30 percent of your spending limit, and always pay it off completely every month. Be sure you never miss a payment, or your score will take a negative hit. The key here is to use the card wisely, and to try to avoid interest fees by paying it off every month.

Running Debit Cards as Credit Cards

Now, you might be asking if you can build credit by running your debit card as credit. You can run your debit card as “credit” for just about any purchase. But that doesn’t change where the money comes from, so it still doesn’t affect your credit score.

When you use your debit card as intended — with a PIN number — you’re authorizing the transaction to immediately transfer your money from your bank account to the merchant. Credit transactions aren’t processed until the merchant settles the purchase which usually takes 2-3 days to show up in your bank account. When you run your debit card as credit (perhaps because you forgot your PIN) the bank might charge the merchant a small fee to process the transaction, but it makes no difference to your account or your credit score.

Building Credit Using Your Debit Card

How do you build credit with a debit card? Again, it’s not possible to directly build credit using your debit card, but you can possibly affect your credit standing by using your debit card to pay bills or pay off debts. Building your credit with a debit card in this way will be a slow process and might not even have a noticeable effect on your score. If you’re struggling to get approved for a credit card, you could improve your chances by using a co-singer like a parent or spouse.

Alternatively, you may want to start with a secured credit card, which functions very similarly to a debit card. You deposit a specific amount into the card’s account, and then the bank allows you to charge up to the amount you deposited. After six months of spending less than your limit and paying the card back on time, you can request the bank to update your credit information and add this secured card to your credit report. This could help you build enough of a credit standing to be able to apply for a credit card or loan.

Your FICO score is the credit score used by most major lenders so that’s the score we’re focusing on today. This score could help or hurt you when looking to purchase a home, car, or any other loan. These are the ways you can improve your FICO credit score:

  • Pay your bills on time
  • Reduce the amount of debt you owe and pay it off as soon as possible
  • Keep balances on your credit cards low
  • Don’t apply for multiple credit cards in a short period of time
  • Don’t open multiple accounts
  • Don’t close unused credit cards
  • Manage your credit cards responsibly
  • Check your credit and request a report but don’t do this too often
  • Dispute any misinformation on your credit report (like a medical bill for services you never received)

Your credit score will determine whether or not you’re approved for that car loan or mortgage, so it’s pretty important. It can be hard to get started as it’s difficult to build credit and increase your score without a credit card, but as long as you keep your debts low and pay your bills you’ll be on the right track.

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Tylene is a freelancer in Boise, Idaho. She's a self-taught personal finance hacker with zero debt. She eats avocado toast for breakfast.

This post was updated March 5, 2018. It was originally published March 5, 2018.