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Do Debit Cards Help Build Credit?

Do Debit Cards Help Build Credit?

The short answer to this question is: No, debit cards do not help build credit. Debit cards are best considered a hybrid between ATM cards and more traditional credit cards. The fact that debit cards don't build credit does not mean they are not worthwhile financial tools. For some consumers, they are actually more beneficial than a credit card when it comes to financial management and debt reduction. But one thing a debit card won't do is help build or repair credit.

Debit vs Credit

The reason why a debit card is best viewed as a hybrid card is because it allows flexibility similar to a credit card but with direct access to your cash like an ATM card. Debit cards, especially those displaying a Visa or MasterCard logo, are accepted everywhere credit cards are with little to no limitations on paying for purchases. Since a debit card is tied directly to a checking account, it limits a consumers ability to make large purchases and accrue excessive debt. A debit card also means not paying high interest rates on outstanding balances which means more money in your pocket. Debit cards may not be as safe as credit cards however when it comes to fraud protection.

Using Debit Cards

Debit cards function the way they do because national credit card processors have agreed to develop relationships with various banks and credit unions to process payments. While debit cards are more ubiquitous today, there was a time when a relative or friend would have a debit card from their bank but you may not have had the same access. Now virtually all financial institutions and retailers accept debit cards as payment both online and in person. Instead of using an ATM card and entering your PIN when making a purchase, you can just swipe your bank issued debit card.

What Affects Credit?

Credit histories are only affected by specific types of credit: revolving lines of credit like credit cards and installment loans like mortgages. Credit cards impact credit histories because they are loans provided by an institution on terms which require monthly payments and accrue an interest expense on outstanding balances. As you can tell from the description, debit cards are neither a loan nor do they accrue interest. Debit cards just allow an individual more convenient access to their own money and nothing else.

Are Debit Cards Better?

Whether or not debit cards are better or worse than credit cards is a personal decision for each consumer. Some individuals can use credit cards for decades with no issues while others incur excessive debt loads resulting in missed payments, penalty fees and interest and finally charge-off accounts or legal judgments. It is highly recommended for consumers repairing their credit or trying to maintain a debt free lifestyle to use debit cards whenever possible.

Building Your Credit

If you're wanting to build your credit then the best option is to inquire about a secured low limit credit card. These types of credit cards are ideal for credit repair and credit building because they, for the most part, eliminate the risk of excessive debt. This credit limits are often $500 or less and they allow consumers to make small purchases and pay the bill in full at the end of each month. Debit cards, while convenient, do not have a similar charge today and pay later function and therefore do not help build credit.

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