Unfortunately, there are no debit cards that build credit. Debit cards and credit cards have different functions and purposes, so if you try to get a debit card that builds credit, you’ll be disappointed.
“When you use a debit card, the payment is taken directly from your bank account unlike a credit card where you are borrowing money,” says Steven Millstein, a certified credit counselor, and blogger at Credit Zeal.
Because there’s no credit relationship with a debit card, there’s no way to build credit. But there are other ways a debit card can help you. Let’s take a look.
3 ways a debit card can help you
While there’s no such thing as debit cards that build credit, having a debit card and using it regularly can still help you. Here are just a few ways.
If you can demonstrate to the bank that you can manage a debit account”
1. It can help you get a credit card with your bank or credit union
“If you can demonstrate to the bank that you can manage a debit account,” says Millstein, “this will increase your chances of getting approved for a credit card.”
When banks and credit unions underwrite a credit card application, their biggest goal is to determine whether you’re a risky borrower. All they want to know is if you’ll make your payments on time.
In addition to checking your credit score and report, they may look for evidence that you have a proven track record of managing your finances. They can do this more easily if you have a checking and savings account with them.
The more you use your debit card without ever getting an overdraft fee and the more you set aside in savings, the more trustworthy you might appear. Note that this doesn’t mean you’re guaranteed to get approved.
Banks and credit unions will consider a lot of different factors, but having an existing account with them can help.
2. It can help you avoid debt
Using a credit card can help you build credit, but there’s always the potential that you’ll go into debt.
Credit cards charge an average interest rate of 15.32%, according to the Federal Reserve, and even a small balance carried over can snowball into unmanageable debt.
So, if you’re looking to build credit and you have a history of overspending, consider using your credit card just a few times a month — maybe even only for small recurring charges like Netflix and Spotify memberships — and use your debit card for the rest of your everyday purchases.
This helps because you can only use what you have in your account with a debit card. And while you can overdraw your account, you’re heavily penalized for doing so, and it might be worth opting out of overdraft altogether to avoid the potential fees.
By using a debit card, you can keep much better track of your spending habits”
If you’re already in debt with one or more credit cards, strictly using a debit card can help you get out of debt because you’re not continuing to add to your debt load as you’re trying to pay it off.
3. It can help you manage your money overall
“By using a debit card, you can keep much better track of your spending habits,” says Millstein.
Part of that is because the money typically gets taken out of your account as soon as you swipe your card. With credit cards, it can take a few days, depending on how often the merchant processes their payments.
So, if you’re an avid budgeter, it helps to see the expenses happen in real-time, so you don’t forget about transactions then see them come through later.
You just need to keep an eye on your balance because, if it’s low and you use your debit card a lot, it could quickly drain your cash amount.
And as we mentioned before, you can only spend what you have in the account. So, even if you don’t actively budget, you know how much money you have to spend.
That can be hard with a credit card because your account is separate from your checking account and your credit limit may be much higher than the amount you actually have in cash.
The bottom line
If you’re looking to build credit, a debit card won’t help you achieve your goal. For that, check out some of the top credit cards, pick one, and use it responsibly to establish a good credit history.
But note that a debit card can still make your life easier.
Not only can it help you score a good credit card from your bank or credit union, but using one in tandem with a credit card can help you avoid going into debt. It can also help you with your overall budgeting and money management.
Consider all of these benefits and drawbacks before you choose a credit card over a debit card. Also, consider whether it makes sense to do both rather than just one or the other.
There’s no correct answer for everyone, so it’s important that you do your research and consider your needs and preferences.
Ben Luthi is a personal finance writer and a credit cards expert who loves helping consumers and business owners make better financial decisions. His work has been featured in Time, MarketWatch, Yahoo! Finance, U.S. News & World Report, CNBC, Success Magazine, USA Today, The Huffington Post and many more.