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

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By Eric Rosenberg, MBA __
__Reviewed by Lauren Bringle, AFC®

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, it is still a debit transaction.

While a debit card may not help when building credit or establishing a good credit score, it is the safer option if you have a hard time paying off a traditional credit card on time. If you are wondering if you can start using a debit card for credit, you are not alone. 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, credit union, or financial institution.

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?

Does a debit card build credit? Unfortunately, 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, credit union, or financial institution 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 a 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. That’s how much money you can spend up to on future purchases in that moment.

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, which you will eventually have to pay off to your credit card issuer. 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 and you do not accumulate credit card debt.

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 traditional 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 credit 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 for your money.

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 the creator of the Personal Profitability blog and podcast. He has both an undergraduate degree and a MBA in finance and his work has appeared in various media outlets. See Eric on Linkedin and Twitter.

About the reviewer

Lauren Bringle is an Accredited Financial Counselor® with Self Financial– a financial technology company with a mission to help people build credit and savings. See Lauren on Linkedin and Twitter.

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Written on November 3, 2020
Self is a venture-backed startup that helps people build credit and savings. Comments? Questions? Send us a note at hello@self.inc.

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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