“Understanding Debit Cards and Credit Building: Tips and Strategies”

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Why Debit Cards Generally Don’t Help You Build Credit

Using your debit card responsibly is crucial for managing your finances, but it typically won’t help you build credit. This is because debit card transactions are not usually reported to the major credit bureaus (Experian, TransUnion, and Equifax). When you use a debit card, funds are directly withdrawn from your checking account, meaning you aren’t borrowing money, and thus, no credit is established.

Even when you use your debit card as “credit” during checkout, it doesn’t impact your credit score. The transaction is processed differently, but the funds still come from your checking account. In contrast, credit card transactions involve borrowing money, and your payment history is reported to the credit bureaus, which helps build your credit score.

How to Build Credit

Building or rebuilding your credit involves having on-time debt payments reported to the credit bureaus. Here are some strategies to help you build credit:

1. Try a Credit-Building Debit Card

While most debit cards don’t help build credit, some new offerings are designed to do just that. For example, the Experian Smart Money™ Digital Checking Account & Debit Card can help you build credit without incurring debt. It links to Experian Boost®, which gives you credit for eligible bill payments after three months. This card also offers no monthly fees and access to over 55,000 fee-free ATMs worldwide.

2. Become an Authorized User

Another way to build credit is by becoming an authorized user on a family member’s or friend’s credit card. The account will be added to your credit history if the issuer reports authorized-user accounts to the credit bureaus. Ensure the primary account holder uses their card responsibly to benefit your credit score.

3. Open a Credit Card

If you have a thin credit file, qualifying for a traditional credit card can be challenging. A secured credit card, which requires a refundable deposit, can be a good alternative. Use the card responsibly, and your payment history will be reported to the credit bureaus, helping you build credit. Some creditors may convert a secured card to an unsecured one after a period of responsible usage.

4. Consider a Credit-Builder Loan

A credit-builder loan works in reverse compared to a traditional loan. You make fixed monthly payments over a set period, and your payment history is reported to the credit bureaus. This can help you build credit, and at the end of the term, you’ll receive your money back, possibly with interest.

5. Get Credit for Paying Rent

Experian Boost allows you to get credit for qualifying residential rental payments. Rent payments are not usually reported to the credit bureaus, but Experian Boost can add them to your Experian credit file, potentially increasing your FICO® Score.

The Bottom Line

Using your debit card responsibly is always a good practice, but it won’t typically help you build credit. However, new debit card offerings and other strategies can help you bridge the gap between responsible checking and creditworthiness. The goal is to show creditors that you are a trustworthy borrower who can manage payments effectively.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We are here to help you with all your mortgage requirements.

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