Does Charging on a Debit Affect Credit?

Credit reporting bureaus do not report debit card accounts, but a debit can still affect your credit rating. Usually, this effect is tiny, but you can do serious damage if you do not read user agreements from a merchant. You can use debit cards to boost your credit rating, but it may cost you money.

Identification

Normally, credit bureaus omit debit card accounts from a credit report because using one does not entail borrowing credit, according to Jeanine Skowronski of MainStreet. A debit card can affect your credit when you misuse it. For example, if you charge more to the card than you have in your bank account, the bank may send the account to a debt collector if you do not pay the overdraft back in a timely manner. Collection accounts and court judgments are some of the worst items you can have on a credit report.

Warning

If you ever have to use a debit card as a security deposit, ask the merchant about its policy on credit checks. Car rental places often perform a hard inquiry into your credit history. Hard credit checks do 0 to 5 points in damage, but six or more are a highly derogatory item. Data from the Fair Isaac Corp. reveals that once you have six or more inquiries, you are more likely to declare bankruptcy.

Self-Reporting

While the major credit reporting bureaus probably won't list a debit card even if you have proof of payment on the account, an alternative credit bureau probably will list it for a monthly subscription fee. Alternative credit bureaus list any account, such as debit and prepaid debit cards, on a credit report as long as it can verify a payment. Creditors may not accept an alternative credit score as readily as a FICO score, but they may consider it.

Tip

If you want to build credit history and limit your exposure to overspending, consider a secured credit card. Secured accounts are like a debit card in that you must put a security deposit on the account equal to the card's limit. The difference is when you make purchases, the creditor draws on the card's limit and only touches the deposit if you default on the account.