Can Debit Cards Establish Credit?

Perhaps you are considering using a debit card. Many people use debit cards to make all sorts of purchases every day. Debit cards are quite popular because you can use them to buy clothes, food and other essential items. Read on to learn more about debit cards and to find out whether debit cards can affect your credit history.

Significance

Many people today use debit cards to make purchases, pay bills and to access money from an ATM (Automated Teller Machine). However, it is important to realize that debit cards do not operate in the same manner as regular credits cards. If you are interested in establishing credit, you must be aware that debit cards cannot be used to improve or build your credit history. According to Clear Point Financial Solutions, debit card transactions are not reported to any of the 3 major credit bureaus: Equifax, Experian and TransUnion. As a result, there is no possible way to establish credit in your name by using a debit card.

Identification

Debit cards look very similar to credit cards. In fact, many types of debit cards even have the MasterCard or Visa logo imprinted on the card. As with credit cards, debit cards have the person's name, card number and expiration date engraved on the front of the card. However, to distinguish debit cards from credit cards, a debit card will have the word "debit" or "ATM card" written somewhere on the front of the card.

Function

Some people may believe that debit cards are the same as credit cards because you can use both types of cards to make purchases online or in stores. Many people also use debit cards to make hotel reservations and to rent vehicles. However, you can only use a debit card to access funds that are already available in your bank account. When using a credit card, the financial institution lends you the money and extends you a line of credit. Basically, if you want use a debit card, the funds must be available in your account in order for the transaction to be approved. The funds are normally withdrawn from your account immediately once the transaction is complete. Since you are not required to make monthly payments on your debit card, your bank or financial institution has no information to report to the credit bureaus.

Benefits

Although you cannot use debit cards to establish credit, there are other benefits for using debit cards. First of all, according to College Board, Inc., there are no interest or late-payment fees associated with debit cards. However, depending on your financial institution, you may be responsible for monthly service charges and transaction fees for your debit card. Also, you cannot accumulate a lot of debt with debit cards. The money is automatically taken from your account with each transaction. In addition, practically everyone qualifies for a debit card as long as you already have an active bank account with funds in that account.

Considerations

If you want to establish credit, you should apply for a MasterCard, Visa, Discover or American Express card. You may also choose to apply for credit card with a retail or jewelry merchant; or perhaps you can apply for a gas credit card. Many banks, credit unions and merchants offer a variety of credit cards to suit your needs. If you still have no luck with establishing credit in your name, maybe you should consider opening a secured credit card. Secured credit cards are similar to debit cards because you must have funds available in your bank account to make purchases. However, financial institutions usually report secured credit card accounts to the major credit bureaus, and this can help you establish credit in your name.