Can You Build Credit With a Debit Card?

Why Debit Cards Generally Don’t Help You Build Credit

Whenever you use your debit card, the funds are directly withdrawn from your checking account. Since you’re using your own money in real time to cover the cost, credit isn’t established or maintained through debit transactions—that happens when you borrow money from a financial institution.

When you swipe a credit card, for example, the creditor pays the merchant on your behalf. You then accumulate a balance that’s your responsibility to repay. Many creditors report your account balances and payment history—including whether your payments were on time—to the three major credit bureaus (Experian, TransUnion and Equifax). Each one maintains its own credit report in your name. The information on your credit reports is used to determine your credit scores.

Some financial companies might report debit card transactions to the credit bureaus, but it isn’t the norm. It’s also worth noting that using your debit card as “credit” during checkout won’t help you build credit, either. It simply changes the way the transaction is processed with the merchant. The funds will still come out of your checking account like they would normally.

How to Build Credit

Depending on your credit history, your available options for building (or rebuilding) your credit may vary. Regardless of the method, building your credit involves having on-time debt payments reported to the credit bureaus one way or another. Strategies to accomplish this include the following.

Become an Authorized User

A family member or friend might be able to add you as an authorized user on one of their credit cards. You’ll then receive a card in your name. It’ll be added to your credit history if the credit card issuer reports authorized user accounts to the credit bureaus. That, in turn, can help you build credit.

You won’t be responsible for making payments—that will fall on the primary account holder, though you can reimburse them directly for any purchases you make. Just make sure they use their card responsibly before you ask to become an authorized user on their account. A credit history that has no missed payments and a consistently low credit utilization ratio will go the furthest toward helping you improve your credit score.

Open a Credit Card

Qualifying for a traditional (or unsecured) credit card can be tricky with a “thin” credit file. A secured credit card may be a good alternative. It requires you to make a refundable deposit, which typically determines your credit limit. You can then use the card like any other credit card. If the issuer reports your payment history to the credit bureaus, it can help build your credit if you use your card responsibly. That means making on-time payments and keeping your credit utilization ratio as low as possible.

Some creditors will automatically convert a secured credit card to an unsecured card after so many months of responsible usage. If not, your credit may be strong enough at that point to qualify for a traditional credit card.

Consider a Credit-Builder Loan

With a traditional loan, the borrower receives the funds upfront and then repays it over time. A credit-builder loan works in reverse. You’ll make fixed monthly payments for a certain period of time, usually six to 24 months. Your payment history is reported to the credit bureaus along the way. Making your payments on time can help you build credit. Once the loan term is up, you’ll receive your money back—which may include interest you paid. These types of loans can be a good option for those who lack credit history or have less-than-perfect credit.

Get Credit for Your Rent Payments

Your payment history accounts for 35% of your FICO Score. Adding your rental data to your credit file can be a simple way to build your credit, assuming you pay your rent on time every month. Rent payments aren’t normally reported to the credit bureaus, but features such as Experian Boost can add them to your credit report. That could increase your credit score relatively quickly. Your residential rent may qualify for Experian Boost if:

• You make online payments
• You’ve made at least three rent payments within the past six months (including one over the last three months)
• Your rent amount is high enough to qualify

The Bottom Line

It’s always smart to use your debit card responsibly, but it probably won’t do much to build your credit. If you have a limited credit history or are looking to improve your credit score, other approaches might make more sense. The goal is to show creditors that you’re a trustworthy borrower who knows how to manage payments. Meanwhile, you can check your credit report and credit score for free anytime you like with Experian.