Will a Debit Card Affect My Credit Score?

The transactions you make with a debit card typically do not help you establish credit, even if you use it properly and have never overdrawn your account.

Unlike credit cards, that are recorded on your credit file affect your credit score, debit cards do not affect your credit score. But that doesn’t mean that using a debit card is not important; instead, it's essential to keeping your credit profile stable.

Debit cards vs credit cards

Although they look similar, credit and debit cards function differently and have different features. Credit and debit cards both look  similar, including CVV codes, 16-digit card numbers and expiration dates.

However, the two cards have different purposes and ways to use them.

Credit cards come with a specified credit limit and you need to pay back what you owe according to an agreed schedule when you opened your credit card account.

When you use your card to make a purchase, the creditor pays the retailer on your behalf. It is then your duty to pay back the total balance.

At the conclusion of each billing cycle, you have the option of paying it in full or paying a portion and carrying the remainder. Just be aware that there will be a fee associated with carrying the debt, which might be significant.

A debit card is connected to your checking account. Whenever a debit transaction is made, the funds are directly deducted from that bank account (using your own money).

Your debit card functions are much like cash in this way. Unlike credit cards, there is no "credit" accessed in debit card transactions, so you pay the entire amount in real-time.

How they impact your credit report

Creditors will report to credit reference agencies - like TransUnion, Experian, and Equifax, about your account balances and payment histories. . Each one keeps a separate credit record under your name. Your credit scores are calculated using the data on your credit reports and by credit scoring models unique to each credit agency.

However, debit card details are typically not included in your credit report. However, some financial institutions might be trying to find a way to change that.

Debit cards and overdrafts

Although using a debit card won't affect your credit score, going into an overdraft might.

A current account overdraft is a type of borrowing that you can use as a short-term safety net, whether you need a little additional money to pay unforeseen costs or just to get by. According to the Financial Conduct Authority, almost 13 million people have been overdrawn in the last 12 months. 

Your credit score can be improved by properly managing a "planned" overdraft, which includes keeping it within your overdraft limit, paying it off on schedule, and limiting how often you use it. Poor management may have the opposite effect.

You may be permitted to utilise an "unarranged" overdraft by some banks and building societies, but doing so could lower your credit score.

Building your credit profile

There are many things you can do to improve your credit score. If you're just starting your credit journey, consider a credit card  as opposed to a debit card  to improve your credit score.

Here are a few tips for using credit cards to build your credit history:

Open a traditional credit card

Some lenders want  previous credit history. You can still be eligible for a new account even with a spotty credit history or poor credit scores.

One option is to open a store credit card, as these usually have lower eligibility requirements (although they typically charge very high interest rates). The goal is to carefully use credit in both cases.

Avoid late payments and only take on debt that you can afford to repay completely each month. To avoid a large drop in your credit score when you have a balance, it's best to keep it less than 30% of your overall credit limit.

Open a secured credit card

You might have better luck applying for a secured credit card if getting a standard unsecured credit card isn't a possibility. Secured credit cards demand an upfront security deposit from you, typically equal to your credit limit, in order to lower the risk for the lender.

A secured card is used just like any other credit card, and your payment history will be visible on your credit report if the credit card issuer reports your account payments to a credit bureau.

After a predetermined number of months, some creditors could change your secured card to an unsecured credit card.

Be an authorised user on someone else's account

You might be allowed to become an authorised user on a family member's credit card. If the card issuer reports authorised user accounts, the card you obtain will be put in your credit file and help you build a credit history.

Although you won't be required to make payments, the primary account holder will need to be reimbursed if they wish to retain you on the account.

To ensure that you receive the greatest benefit, only ask someone you are confident pays all of their bills on time and has a low card balance.

Pay your loans on time

There are many different types of instalment loans. Making on-time payments on all of your debts, including school loans, personal loans, mortgages and auto loans, is one of the best things you can do for your credit.

Missed payments can lower your credit score and can also be reported for up to seven years on your credit report.