Does My Debit Card Affect My Credit?

Although they may look the same, a debit card (also called a check card) is actually quite different from a credit card. When credit bureaus such as TransUnion, Equifax and Experian calculate your credit score, whether or not you have and use a debit card typically has no bearing on the calculation. However, some exceptions can occur.

Debit vs. Credit

Because credit card companies provide the payment structure for debit cards, their logos usually appear on debit cards just as they appear on credit cards. However, these two types of cards are very different. When you use a credit card, the company from whom you are purchasing the good or service charges your credit card company. Your credit card company pays the seller and adds the value of what you bought to what you owe it. As you accrue a debt on your credit card account, the credit card company makes money by charging you interest on what you owe. However, with a debit card, no third party pays anything for you: the money you spend comes directly out of your checking account.

Available Credit

When credit bureaus calculate your credit score, they look at many different variables and pieces of information. One thing they look at is the amount of available credit you have versus the amount you are actually using. For instance, someone with a credit card that has a $5,000 limit but has only charged $150 worth of purchases on it will have a better credit score than someone who has maxed out his $5,000 credit card limit (assuming that all other variables between the two individuals are the same). In this way, your use of credit cards can affect your credit score. However, since debit cards have no such line of credit, the extent to which you use your debit card does not affect your credit score. Using your debit card frequently does not hurt your credit score, and refraining from using it does not help your credit score.

Late Payments

When you fail to make timely payments on credit cards, other lines of credit or loans, this will hurt your credit score. Since debit cards do not require any type of regular payment, you do not have to worry about such issues with debit cards. However, if you have set up automatic payments through your debit card, be careful. If a company tries to make an automatic withdrawal when you have insufficient funds in your account, the bank may decline the payment. If that happens, though the bank will not make a negative report to the credit bureaus, the company that tried to retrieve the automatic payment might. This will also happen if you close your debit card account and fail to transfer all automatic payments to a new account.

Overdrafts

Some banks simply decline debit card payments when you do not have sufficient funds in your account, while others allow the payments to go through and thus display your balance as a negative number. When this happens, banks usually assess an additional overdraft charge. Having an overdraft on your debit card account does not directly affect your credit score, but if it remains unpaid, the bank could let the debt go to a collections agency, in which case the overdraft will affect your credit score.