What Happens if You Use Your Debit Card as “Credit”?

What Happens if You Use Your Debit Card as Credit?

When you pay for a transaction with your debit card, you enter your PIN number, the purchase is instantly processed and the purchase amount is immediately deducted from your account.

By contrast, when you run the transaction as credit, you don’t have to enter your PIN, but you may need to sign for it. Typically, your payment information is routed through the merchant’s credit card processor and the same payment gateways credit card transactions use—Mastercard or Visa. As a result, the transaction may appear as “pending” in your checking account for several days until it’s authorized.

Will Using My Debit Card as Credit Help Build Credit?

No, using your debit card won’t help you build credit in most cases, even if you choose the credit option. That’s because your own money, not credit, is used to fund your debit card transactions—something that remains true even if you choose the credit option at checkout. The payment funds are withdrawn directly from your checking account in either case.

Credit cards, on the other hand, can be a useful tool for building credit. When you charge a purchase using your credit card, your creditor covers the purchase, which you must repay. By making purchases with your credit card and paying your bill on time, you’re demonstrating responsible credit habits, which can contribute positively to your credit score.

Experian’s CreditMatch can help you find the best credit cards matched to your FICO Score, the credit score used by 90% of top lenders. Experian applies your score and reveals the best options for rewards, cash back and other types of credit cards that may be available to you.

How to Build Credit

While a debit card won’t usually help you build your credit, there are plenty of options that will. Deciding which strategy might help you the most may come down to your credit history and financial situation. Effective credit-building options like those that follow involve making consistent, on-time payments to a creditor who reports your activity to the credit reporting agencies.

• Open a credit card. With good credit, you may qualify for an unsecured credit card. By making on-time payments and keeping your balance low, your credit may improve over time. Even if your credit is less than ideal, you may qualify for a credit card designed for those with bad or no credit.
• Get credit for bills you already pay. One quick way to potentially improve your credit is by using Experian Boost. This free feature allows you to include on-time payments for rent, cellphone, utilities, streaming services and other bills in your Experian credit report. Their presence in your report will demonstrate your payment history for bills that aren’t typically reported to credit bureaus.
• Sign up for a secured card. A secured credit card can be a good option for building credit if you’re unable to qualify for a traditional credit card. That’s because your account and payment history are usually reported to one or more of the three major credit bureaus. This type of credit card typically requires a security deposit ranging from $200 to $3,000 to open your account. The deposit, which is usually the same amount as your credit card limit, acts as collateral for your card issuer to offset its risk.
• Become an authorized user. Another effective method for building your credit is to become an authorized user on a friend’s or family member’s credit card. By doing so, you may receive your own credit card, but you aren’t responsible for making the payments. The primary benefit is that you can leverage their strong credit to build your own. As long as the card issuer reports credit balances and payments to the credit reporting agencies and the cardholder has a positive payment history, the primary cardholder’s timely payments will be added to your credit history, which can positively impact your score.
• Take out a credit-builder loan. With a traditional loan, you receive the funds upfront and repay your lender with interest over time. However, with a credit-builder loan, the lender deposits the money, usually $300 to $1,000, into an escrow account, which may be a certificate of deposit (CD) or savings account. You then make fixed payments to your lender until the end of the loan’s term, which typically ranges from six to 24 months. At that time, you’ll gain access to the loan amount, potentially with interest. A credit-builder loan offers the dual benefits of reporting your payments to the credit bureaus each month (in most cases; double-check to make sure) and helping you save money.

Regardless of which method you use to build your credit, your best results will come from managing your credit responsibly. For example, it’s essential to make your payments on time and keep your debt balances low since your payment history and credit utilization ratio account for about 35% and 30% of your FICO Score, respectively.

The Bottom Line

Whether you use your debit card to make a debit or credit transaction, the result is effectively the same: The money is withdrawn from your checking account, though the time frame may differ. But depending on your bank, running a transaction as credit may provide you with stronger fraud protection for unauthorized transactions.

Regardless of how you use your debit card, it’s wise to check your account regularly to track your payments and to ensure there are no errors or fraud. While you’re at it, consider signing up for free credit monitoring to help you stay on top of your credit. Monitoring can alert you in real time when suspicious activity is detected on your Experian credit report. Additionally, the FICO Score tracker can notify you when there are changes to your credit score or rating.