Will Using a Debit Card Increase Your Credit Score? This is a question that has puzzled many people. Although the usage of debit cards was not included as a parameter for determining the credit scores of individuals, there are two different answers to this question. This article gives a strategic explanation of the reasons why it is possible and why it isn’t.
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Will Using a Debit Card Increase Your Credit Score?
Everyone will give a resounding “no” to that question, but it is not as simple as that. You can do a lot with a traditional debit card, such as withdrawing money from an ATM and buying things online, but none of these will have any effect on your credit score.
This was the case in times past, but situations are not the same as times have changed. There is a new generation of emerging debit cards that provide all the features offered by a traditional debit card and still build credit at the same time.
Do Debit Cards Affect Your Credit Score?
With the explanation given above, it’s beginning to become clear what our answer will look like.
You build your credit score by building a positive credit history, and this is done by using credit wisely. When you get a loan from a loan company, you are using credit. You cannot build credit unless someone lends you money, i.e., using your own money will not help you build credit.
There is a big difference between borrowing from a lender or a creditor and borrowing from a friend. With a lender or a credit issuer, your loan will be reported to the three major credit bureaus: Experian, Equifax, and TransUnion. This is what builds your credit.
Therefore, your attitude towards a loan will be reported to the credit bureaus, and this will determine whether your credit score will go up or come down.
Why Can’t You Build Credit with a Traditional Debit Card?
With a traditional debit card, you are using your own money. The money you use is deducted directly from your bank account. The bank does not lend you money or offer you a line of credit. You are not borrowing.
All these transactions are not reported to the three main credit bureaus.
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How to Use a Debit Card to Improve Your Credit Score
As stated above, some new debit cards are beginning to change the idea that debt cannot build credit history. These cards link to your existing bank accounts. The credit limit given will be based on your account balances unless you specify a lower credit limit. With these cards, a credit-building layer is added to your existing bank accounts.
When you make a purchase with these cards, they will “spot you” and the funds and deduct the amount from your account the next day. This means that they are giving you a one-day credit line that can be reported to credit bureaus once a month.
To move on with this discussion, let’s take a look at some of these credit-building debit cards.
Best Debit Card for Credit Building
Below, we highlight some of the top debit cards that affect your credit score.
Additional Debit Card
This debit card was the first ever debit card to offer credit-building features. With this debit card, you can keep your money safe in your bank account but then link and use the debit card to build your credit score. This card is used by more than 10,000 banks in their US network.
This card is not much different from your normal debit card as it offers all the perks. It requires no credit check to open, no interest, and no hidden fees. This card also offers a $1 reward on your everyday purchases. These rewards can be cashed out for gift cards or some offers in their rewards store.
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Fees for Extra Debit Cards
Extra debit card charges
- They charge $8 per month for their credit building plan ($7/month if it is paid annually).
- $12 per month for their Rewards plus Credit Building plan ($9/month if it is paid annually).
The credit-building plan is best if you do not expect to spend more than $400 on purchases eligible for a 1% cash reward.
The Sequin Debit Card
This debit card used for establishing credit, called Sequin, was created by women for women. Lower credit limits on credit accounts are frequently offered to women and members of minority groups, which can result in increased credit utilization and lower credit scores. By giving credit for each debit transaction you make, Sequin hopes to “break the cash ceiling.”
Sequin is a newcomer to the market for debit cards that also build credit, but it is expanding quickly. Similar to Extra, Sequin advances the funds and then deducts the money itself a day or two later. There are no additional costs, interest charges, or monthly fees.
Sesame Cash Debit Card
The Sesame Cash debit card was created to aid customers in building credit. The model is a little bit different from what Extra and Sequin are using. Your credit limit with Sesame Cash won’t be determined by your account balance. For a virtual secured credit card, you must set aside a predetermined sum of money each month as a security deposit.
A virtual secured credit card balance with an identical balance is created when you use Sesame Cash debit, and funds are set aside to pay it off.
Sesame Cash will permit debit purchases up to the monthly limit you specify.
If you cannot afford to allocate more than a very small amount of money, it is advisable to keep your purchases very low to maintain a good credit utilization rate.
How to Use a Credit Card to Improve Your Credit Score
Credit cards, particularly if you use them frequently and pay off your bill in full each month, can help you build credit over time. Credit cards have a set credit limit that may give you additional freedom while making purchases or in the event of an unforeseen need.
Because debit cards deduct your purchases from your checking account, they may help you stick to your spending plan. Both debit and credit cards can have an impact on your finances, even though only credit cards and the specified debit cards given above have a direct impact on your credit score.
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Frequently Asked Questions
Does Losing Your Debit Card Affect Your Credit Score?
Not actually. In the case of a credit card, there is no effect either. Your account age and other information can easily be transferred to another account.
Does Debit Card Decline Affect Credit Score
When you have a debit or credit card transaction, your credit is not affected. Although, it could be quite embarrassing especially if you do not have another way to pay. However, declination will not reflect on your credit score.
Do You Have a Credit Score Without a Credit Card
Of course, you can have a credit score without having a credit card. This is because credit card companies are not the only ones that report your payment and usage history to the three credit bureaus.
Do You Have a Credit Score If You Have No Credit?
The statement “no credit score” is used to describe a situation of not having a definite number tied into your credit profile. This may be because you have not had a credit card or loan or you have not used credit in a long while.
Do I Have a Credit Score with a Debit Card?
Debit card activities are not reported to the three credit bureaus that monitor and provide access to your credit reports.
