Do Debit Cards Affect Credit Score?

You may wonder whether debit cards have any impact on your credit score

Although they are both plastic cards used in payment, debit cards and credit cards seem to be comparable. They do, however, work in somewhat diverse ways and their structures vary as well. Credit cards let you make purchases now and pay back the cost plus interest at a later date, just like loans enable. A debit card is a kind of payment card wherein the purchases are paid from the money straight from a checking account.

This brings the commonly asked question: Does the credit score change depending on debit card transactions and payments? The quick answer is no; using a debit card does not have the same impact on your credit score as using a credit card. Still, there are some important issues to weigh.

How do Credit Scores work?

First, it is important to know how a credit score is compiled or the elements that make up the score. FICO scores are the most commonly used credit scores, and they are on a scale of between 300 and 850. FICO scores are calculated based on the following factors.

• Credit history: Do you pay your payments on time? Comprising 35% of your ultimate grade, this is the most important element.
  
• Use of your credit limit: How much of it is being used overall? This helps to determine the total score to the extent of thirty percent.
  
• How old are your credit accounts? Count of credit accounts That accounts for fifteen percent of your score.
  
• Payment history: Do you have a credit card, loan, etc. records and have you been paying your payments on time? That makes ten percent of your score.
  
• New credit: Opening many new credit accounts can negatively affect you short term. Ten percent overall is what this represents of your entire score.
  

As you can see from the above explanation, debit cards do not come into any of these categories that constitute your credit score. Merely swiping a debit card, whether to buy goods or pay bills, does not impact a credit score.

They also have indirect effects on your credit score

However, that does not indicate that debit cards cannot influence your credit scenario in other ways. Here are some potential indirect effects.

1. Overdraft fees – If you get a debit card linked to your checking account and you overdraw the account, your bank may charge an overdraft fee. A lot of fees hurt and dealing with them can affect your pocket.
2. Credit card dependence - Depending on debit cards for your spending means that you may not be relying on your credit cards in the right way to help you develop a good credit history. using credit cards moderately is useful so that you can prove to the lenders that you are capable of handling the revolving credit facility.
3. Fraud disputes – Sometimes, fraud charges are made on the debit card and when you question that transaction, it may take some time for the money to be refunded to your account. This may help you avoid other regular expenses such as rent, electricity, medical bills, etc, in the meantime which are also detrimental to your credit rating.
4. Debt management – Some individuals consciously utilize debit cards as opposed to credit cards to avoid accruing credit card bills and this is a good financial decision. However, for the other people, if they do not use their credit cards at all then they cannot even create a good credit history for the long-term effect on their credit scores.

Ways to Establish Credit Using a Debit Card

If you frequently use a debit card, you can take certain steps to still boost your credit effectively.

• At least one credit card should be active for you to sometimes use, perhaps for groceries or gasoline. Try to pay it in full every month.
  
• Repeating transactions above your balance on debit cards should not be done as this draws charges like overdrafts and insufficient funds that might send you into a debt spiral. Watch the balance on your account.
  
• To avoid paying a charge, you should also arrange SMS or email alerts from your bank that will let you know when your balance is low and you must make additions.
  
• To increase one's credit score, always make sure all types of bills—including rent and utilities—are paid in whole and on time.
  
• At least once a year, it is advised to review your credit reports from all three of the credit agencies to find any erroneous entries or bogus accounts that need dispute.
  

The Bottom Line

How you use your debit card does not have a direct effect on your credit; it is just a matter of swiping the card at the Point of Sale device. However, debit cards can work wisely in building a good credit history in the long run, which is helpful. Let your actions be guided by wisdom and always be on the lookout and your financial status will be something to write home about.

Ready to boost your credit score? Call +1 888-804-0104 now for the best credit repair services near you! Our expert team is here to help you achieve financial freedom and improve your credit. Don't wait—get started today!