Does Using a Debit Card as Credit Help You Build Credit?

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By Eric Rosenberg, MBA

When you use your debit card to pay at a grocery store, gas station, or even online, you may have the option of using the card for a debit transaction or a credit transaction. While it may be confusing to see the word credit on the screen, you can rest assured that it’s not actually putting the payment on credit.

Here’s more about what’s going on behind the scenes when you press the credit button while using your debit card.

In this article

What happens when you swipe your debit card as credit?

Behind the scenes, credit card and debit card payments are processed by payment networks. Some are run by familiar brand names like Visa®.

Others, like the Accel network from Fiserv, is less well known but still very important, as are about a dozen others that handle America’s card-based payments.

When you press the credit button, you choose a different payment processing system than when you pay as debit with your PIN. This may change which computers talk to each other and how security is handled for the specific payment and the fees exchanged between the seller, payment processors, and your bank.

But what happens behind the scenes should be invisible to you either way.

For your purposes, there shouldn’t be any difference regardless of which you choose in most cases unless your bank or the merchant charge any specific debit or credit-related fees. Do pay attention to any fees, if applicable, so you pick the payment method that’s cheapest for your purchase.

Learn more: Are debit cards the same as prepaid debit cards?

Can you build credit that way?

Pressing the credit button doesn’t turn your debit card transaction into a credit card transaction. The payment still withdraws from your bank account. The only way a debit card will help you build credit is if it’s attached to an existing line of credit.

For most people, debit cards have no relationship to your credit report and can’t help you build credit. A debit card won’t impact your credit score or credit report in any way.

However, you should still be careful to avoid expensive overdrafts. If you have a series of unpaid overdrafts, your bank may close your account and report the issue to ChexSystems, a credit reporting alternative used by many banks to track banking-related information.

Can you use your debit card as credit with insufficient funds?

You may be able to use your debit card with insufficient funds, but it’s not a good idea. In most cases, this will lead to overdraft fees that can easily exceed $30 per occurrence.

In some cases, your financial institution will simply reject a payment if you don’t have enough funds. But many will happily let the transaction go through and overdraw your account for an added fee – even if you charge your debit card as credit.

What are the differences between using your debit card as a credit card and using a credit card?

When you use a debit card as a credit card, you’re using the card to draw funds directly from your checking account.

For example:

If you have a $1,000 bank account balance and make a $100 purchase at the grocery store, your available bank account balance will immediately go down to $900.

If you make the same purchase with a credit card, it doesn’t touch your bank account at all. Instead, the credit card company pays for the purchase for you. Each time you make a purchase, it adds to a growing loan balance that you’ll have to pay back.

If you pay off your entire credit card balance by the due date every month, you’ll never have to make any interest payments.

If you carry a balance from month to month, interest charges can quickly add up. Depending on your credit history, you may find that credit cards charge up to around 30% per year in interest.

When you use a debit card, there are never any interest charges.

How do you get a real credit card for the first time?

If you want to get a real credit card for the first time, you’ll have to apply for a credit card with a credit card issuer. That may be the same bank you use for your checking account and debit card, but it doesn’t have to be.

When reviewing your application, the credit card company will review your credit history.

If you have never had a credit card, there’s a good chance you won’t have any history or a credit score at all. In that case, the lender may offer you a card with a low limit or suggest a secured credit card instead, where you put down a deposit equal to your credit limit.

If you want to start from scratch without a credit card or want to work on bad credit, a credit builder loan from Self could be the right solution.

If you are brand new to credit or want to turn around a negative credit situation, head here to learn more about how Self can help you reach your credit-related goals.

About the author

Eric Rosenberg is a former bank manager and corporate finance worker with a Bachelor’s degree and MBA in finance.

Written on November 3, 2020

Self is a venture-backed startup that helps people build credit and savings.
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Disclaimer: Self is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.

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