Does a Debit Card Build Credit?

Do you pay for everything with cash or a debit card? If so, this is probably great for keeping your budget on track. Unfortunately, it also means you are not building credit history. 

If you are only ever using cash or a debit card for purchases, then you likely have bad credit or no credit. This is because traditional debit cards don’t appear on your credit report as credit cards do. 

If you want to stick to only paying with cash or debit, there are some debit cards out there that are designed to help you boost your credit score. 

Does a Debit Card Build Credit?

For the most part, a debit card does not help you build credit. 

This is because all of the information reported to the credit bureaus deal only with credit accounts. 

Credit accounts include credit cards, both secured and unsecured, as well as installment loans such as student loans, auto loans, and mortgages. 

All of these account types are ones where a bank or lender gives you the credit to purchase something and you pay them back. 

With debit cards, you are paying for purchases with your own money. You can also check out our Debit Cards That Build Credit article on this. The debit card essentially serves the purpose of letting you pay for items without the need to carry around cash. This can even include paying bills with it, check out our article, What Bills Help Build Credit?, for more information.

Since you are using your own money, these purchases are not considered credit and are not reported to the major credit bureaus. 

The same applies even if the debit card you are using is a debit or credit card and you process a purchase as credit. Even though you are processing it as credit, the purchase total is still coming directly out of your bank account.

And the credit card company (Visa, Mastercard, etc.) will charge the vendor money (a transaction fee) to process your debit card purchase as credit.

How Credit Cards Affect Your Credit

Credit cards affect your credit in multiple ways. 

When the credit card issuer sends your account information to the credit bureaus, they include key aspects of your account, which include your payment history, current balance, the date you opened the card, and current credit limit. 

Your payment history on the credit card, whether you’ve paid on time or late, will impact the payment history portion of your credit score. On-time payments are great for your credit, while 30+ day late payments will negatively impact your credit. 

The current balance and credit limit on your credit cards will both factor into your overall credit utilization which makes up the amounts owed portion of your credit score. 

A low balance and high credit limit will benefit your credit score, while the reverse (a high balance and low limit) will hurt it. 

The date you opened the credit card is necessary in calculating your average length of credit history, which is another important factor in your credit score. The longer you have had a credit card account open, the better it will be for your credit score. 

Why Traditional Debit Cards Won’t Help You Build Credit

In most cases, debit cards aren’t reported to the credit bureaus because there is really nothing the ban or card issuer can report. 

All of the purchases you put on a debit card come directly out of the checking account that the card is tied to, so there is no balance to report. 

And your spending on the card is limited by the amount of money you currently have sitting in your checking account, which is likely to be constantly fluctuating. This means that there is no set credit limit to report. 

Since there is no balance reported, and purchases are paid directly from the money in your checking account, there is no payment history for the card issuer to report either. 

The date you opened your checking account would probably be a nice statistic to add to your credit report, but since none of the other aspects of a credit account are there, the bank can’t report this information to the credit bureaus.

Generally speaking, the only accounts that can appear on your credit report are credit accounts, such as loans and credit cards. 

Only debit card programs that are specifically designed to work as credit accounts will be able to help you build credit.

Extra is a Debit Card That Builds Credit

The Extra debit card is a different type of debit card, one that is designed to help you build credit. 

By linking the debit card directly to your bank account, you can make purchases with their Mastercard-backed debit card, just like you would with any debit or credit cards. 

Extra offers you a spending limit, based on your current bank account balance, which means you’ll never risk an overdraft fee. Each time you swipe the card, they pay for your purchase and then pull money from your bank account the next day to cover the purchase. 

At the end of the month, Extra tallies up all the purchases that you have made and reports these as credit-worthy payments to Equifax and Experian. 

Instead of reporting as a credit card, Extra reports as credit-worthy payments. This means their account will never negatively impact your credit utilization rate.

Extra has two annual plans to choose from. Their Credit Building plan is $149/year and their Rewards + Credit Building plan is $199/year.

Both plans include building your credit, 24/7 support, and their tracking app. The second plan adds in rewards points for every purchase and exclusive access to Extra’s Rewards Store. (Best Reward Debit Cards)

With their rewards earning potential, the fact that they don’t perform a credit check and they help you build credit all make Extra a worthwhile alternative to a traditional debit card. If you’d like to know more about Extra, also check out our Extra Debit Card Review article.

Extra Alternatives

Extra isn’t the only debit card out there with a program for helping people build credit. 

One alternative is the Zoro card. This brand new company issues its customers a Visa debit card that can be used anywhere Visa is accepted, including online and in virtual wallets. 

Instead of purchases being pulled directly out of your bank account like Extra, Zoro lets you fund your account with a set amount of cash, leaving you in control of your limit. 

For a small monthly fee, Zoro will report your purchase activity as payment activity to the credit bureaus each month.  

Unfortunately, Zoro has a 35,000+ waiting list at the time this article was published, so access to the product is limited. 

Another alternative to Extra, one specifically geared towards women building credit, is Sequin. 

This card works much like Extra, by linking directly to your bank account and reporting your purchases as payment activity, but in this case, to all three credit bureaus. You can also check out our Debit Card for Kids or Credit or Debit Card for a Teenager articles if you are thinking about helping your child start building credit now.

Sequin doesn’t charge any monthly fees, but they do require a refundable cash deposit to get started. And it is important to note that while the program is geared towards women, anyone can apply for a Sequin debit card.

Similar to Zoro, Sequin has a waiting list and is not easily accessible. For this reason, our official Digital Honey recommendation for a debit card that builds credit is Extra. You can also look at our The Best Credit Building Apps for another alternative.

Conclusion

When you are working towards building a good credit score, debit cards unfortunately are not the way to go. 

Only credit accounts will build your credit history, i.e. credit cards and loans. Using a debit card is really no different from using cash when it comes to your credit score. 

While traditional debit cards will not impact your credit score, there are debit cards out there that are designed to report your spending activity to the credit bureaus. 

These cards allow you to still pay for all of your purchases using the money in your checking account while also helping you to build credit.

FAQs