Can you build credit with a debit card? The traditional answer to this question is no. Traditional debit cards let you withdraw money from ATMs and shop in stores and online, but building credit with a debit card is not possible.
Times have changed. New-generation debit cards from providers like Extra, Sesame Cash, and Sequin offer all the features of traditional debit cards while building credit. Is there such a thing? Let’s take a closer look at why debit cards have failed to build credit in the past and why they can now.
Table of Contents
- How to Build Credit With a Debit Card?
- Why It Is Not Possible To Build Credit With A Debit Card?
- Debit vs Credit
- How To Build Credit With A Debit Card?
- Top Debit Card Build Credit
- Final Wordings
How to Build Credit With a Debit Card?
Build credit by building a positive credit history. You can build a positive credit history by using your credit wisely.
If the lending institution offers you a certain amount of money and you pay it back over time, you are using a loan. Examples of loans include student loans, car loans, mortgages, and credit cards. You can’t build trust unless someone lends you money. You can’t build credit by spending your own money.
Look at your credit card. When you make a purchase, your card issuer pays the merchant. Repay the card issuer in one lump sum or in installments. When you use your card issuer’s money, you accrue interest.
It’s no different from asking a friend if s/he can borrow $100 and pay it back later.
There is a big difference between borrowing from a lender or credit card issuer and borrowing from a friend. Your credit card issuer or lender will report your loan or credit card and payments to her three major credit bureaus:
Experian, Equifax, TransUnion. This will build your credit history. For example, if you spend $100 on groceries on your credit card on April 1st, the bank that issued your card will immediately pay your local grocery store. Refund to card issuer. Use your card issuer’s money.
Credit card issuers report your purchases and payments to credit bureaus and they become part of your credit report.
Why It Is Not Possible To Build Credit With A Debit Card?
A traditional debit card debits all purchases directly from your bank account. Banks do not lend you money or provide credit lines. You pay for what is available at the time of purchase. You use your own money, no credit.
Debit vs Credit
What is a Debit?
Debit uses what is already in your bank account.
These transactions are not reported to credit bureaus and are therefore not added to your credit report. Direct debits do not create credit balances.
What is Credit?
Credits issue and repay bank money.
A credit history is proof that when you borrow money (loan) from a bank, you are responsible for repaying it. This indicates that lenders are not taking undue risks in providing credit facilities.
How To Build Credit With A Debit Card?
Several new debit cards are changing the notion that you can’t build a credit history with debit. These cards work by linking to your existing bank account. Your credit limit is based on your account balance unless you set a lower credit limit. These cards add a “credit-building layer” to your existing bank account. Once purchased, these credit-building debit cards “recognize” the money and refund it directly from your bank account the next day. They basically offer a daily line of credit that you can report to credit bureaus on a monthly basis.
With a debit card that builds credit, you won’t be in debt while building your credit score. This means that these cards eliminate the risk of overuse. It also eliminates the risk of taking on too much debt, which can increase loan utilization and hurt your credit score. These credit-building debit cards are relatively new and have expanded functionality and access. This includes links to Apple Pay, physical cards and reporting to all credit bureaus.
Top Debit Card Build Credit
A debit card that helps build credit is a relatively unique find. To streamline the research process, we scoured the market for the best products for credit reporting.
Each of the cards below offers a streamlined way to build your credit history while using debit cards. And without the risks of traditional credit cards.
Alphabetically, you can find the best debit cards to build your credit here.
Unlike a traditional debit card, an Extra debit card allows you to improve your credit score by spending the money you already have in your bank account.
The platform regularly reports payments to two of the three major credit bureaus. While reporting to Experian and Equifax, the service does not report payments to TransUnion. This is different from your typical credit card issuer.
You don’t need to sign up for a separate bank account to use an extra debit card. Instead, the service connects to existing financial institutions. There are over 10,000 banks compatible with this platform.
Extra covers cost when you spend money. Extras will be automatically refunded the next day.
These timely payments build a good credit history. Payment history accounts for 35% of the FICO score, so a record of on-time payments steers the score in the right direction.
As you grow your balance, you also earn points for your spending. Extra Offer allows you to earn 1% points on any purchase.
How Much Do Extra Costs?
Extra has two payment options. The first option is annual debit card payments.
- Credit Building Plan $149 per year (equivalent to $12.42 per month).
- $199 per year (equivalent to $16.58 per month) for the Rewards Plus Credit Building Plan.
There is also the possibility of paying an additional debit card every month.
- $20 per month for a credit building plan (equivalent to $240 per year).
- $25 per month for the Rewards plus Credit Building plan (equivalent to $300 per year).
Unless you plan to spend at least $5000 a year on debit cards to get the extra $50 reward, it is best to go with the credit-building plan.
- No credit check
- Get 1% bonus
- No deposit
- Limited options for redeeming rewards.
- Doesn’t report to TransUnion
Grain gives you the option to build credit through debit card spending. This product is a virtual credit card that allows you to improve your credit score without switching to a new checking account.
This virtual credit card works similarly to cash advance. When you start working with Grain, you’ll need to deposit a portion of your credit limit into your linked checking account.
As soon as you start spending money with your virtual credit card, you’ll receive a monthly statement of your spending. Like a regular credit card, Grain reports payment information to all three major credit bureaus each month. If you make your payments on time, this report should improve your credit score and show positive results on your credit report.
Every six months, Grain will review your account to confirm any credit increases. Increasing your credit limit lowers your credit utilization and improves your credit score.
How Much Does Grain Costs?
Grain could be a solution for building credit while paying with a debit card. However, some services are charged.
First, a transfer fee will be charged. A fee of EUR 1 will be charged for each transfer from your credit facility to your bank account. There is an instant transfer option, but with a fee of 1.5%.
Then interest can accrue. You don’t have to worry about interest if you pay the full amount on time each month. However, interest will accrue if payment is not made in full by the due date.
- Reporting to credit bureaus
- Credit increases available
- No credit checks.
- Interest expense
- Transfer fee
Sequin cards are specially designed for women. Women can use this card to get more credit when making purchases with a debit card.
However, the sequin card advises that all genders are welcome.
Unlike other options on this list, Sequin cards may require changes to your checking account. No regular deposit is required, but she needs an Evolve Bank and Trust savings account to use the card.
Like credit card issuers, this service displays your money. However, unlike a regular credit card, the exact same amount is deducted from your bank account on the same day. This creates a record of on-time payments.
If you use a sequin card, you will not be charged any monthly usage fees or interest. Also, you don’t have to agree to a credit check.
How Much Do Sequin Costs?
Sequin has two membership plans.
The monthly plan is $13 per month (equivalent to $156 per year).
The annual plan is $130 per year (17% cheaper than the monthly plan).
- Specially Designed for women
- Reporting to credit bureaus
- No monthly fee
- Rewards & Perks
- Waiting list
- Security deposit required
Sesame Cash is a credit-building opportunity offered by Credit Sesame. This is a digital debit account with built-in credit builder functionality.
To get the card, you must first open a Sesame Cash account. Even without credit-building features, this FDIC insurance account has many features that make it valuable. The Credit Builder Perk is one of the many features offered by Sesame Cash Accounts. To start building credits, you need to apply for a credit-builder account. You then set aside a certain amount for credit-building purposes.
Basically, you can think of these funds as collateral that determines your credit limit.
From there, simply use your Sesame Cash debit card. Once purchased, the Sesame Credit Builder will report those transactions as paid on time. This will show up on your credit report and improve your credit history.
Not only is this credit-building option free, but you can also actually make money using Credit Sesame. If your credit score increases by 100 points in a 30-day cycle, you will receive $100.
How Much Does Sesame Cash Cost?
Sesame Cash has no fees.
- Cashback on purchase
- Rewards for improving your credit score
- Free to use
- Reporting to credit bureaus
- Prepayment required
- Requires a Credit Builder account
Zoro Card is a debit card that can be used to improve your credit score.
You can apply for a Zoro Card without checking your credit report. If approved, you will be required to make a deposit.
Once you receive your card in the mail, you can start swiping. Spending money reduces your balance (and credit limit). However, you can add funds to your card to increase your credit limit.
Every time you swipe your Zoro card, the company reports it as a timely payment to credit bureaus, improving your credit history.
You can cut off the temptation of debt because you can’t use it unless you deposit money.
If you have this positive payment history on your credit report, your credit score should improve. This card offers an interesting opportunity for those who want to improve their creditworthiness. You must have a Hatch Bank checking account to use this card. The process of depositing and withdrawing funds is done through your Hatch Bank account and the associated Zorro card.
Zorro Card requires you to provide your phone number for early access to the app. There is no information about how long the app will be available to the public.
How Much Does Zoro Cost?
Zorro claims there are no fees associated with traditional credit cards when using the card. The company has not disclosed details about the cost of using the debit card.
- No credit is required.
- Immediate approval
- Reporting to credit bureaus
- Security deposit required
- Limited access
Good credit is worth pursuing. If you want to fund bigger purchases, you need a good credit rating. However, good credit can help save thousands of dollars over the life of the loan.
If you want to build or improve your credit score, a credit-building debit card is the best solution. increase.
Best of all, you don’t have to put yourself at risk of credit card debt. This is a sure-fire solution to ensure your credit is as good as possible.
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What are the benefits of building credit with a debit card?
- With a debit card, there is no risk of going into debt. This is because your available balance usually determines your credit limit.
- Unless you have the higher credit limits that come with most credit cards, you should stick to spending only the money you have in your checking account.
- Additionally, if you have a limited credit history, it can be difficult to get your card approved by your regular credit card company.
Does using a debit card as a credit card build credit?
It’s much easier to get a debit card, so you can improve your credit score. Traditional debit cards don’t report payments like credit cards do, so if you’re trying to build credit with a debit card, you’ll need help from your specific card.
A debit card that builds credit gives you the opportunity to build credit while using your debit card.
Are there any drawbacks to using a debit card to build a credit history?
The downside to using debit cards to improve your credit score is that not all debit cards work. Most traditional debit cards do not help build credit. Instead, you should use a debit card specifically designed to help you build credit. These cards report payments to major credit bureaus.
Can you build credit with a credit card?
yes. Using a credit card for purchases helps build trust. However, it can also throw you off the balance if you don’t use your cards responsibly. To build credit with a regular credit card, you need to consistently pay on time and keep your balance to a minimum.