Can a Debit Card Impact Your Credit Score?

While it might seem like any plastic card in your wallet impacts your credit, a debit card typically doesn't. It's tied directly to your bank account, not a credit line.

1. Account Overdraft: The process can begin if a debit card transaction overdraws your checking account, leaving you with a negative balance that you are responsible for repaying to the bank.
2. Unpaid Balances and Fees: If this negative balance and any associated overdraft fees remain unpaid for an extended period, the bank may eventually close your account.
3. Debt Sent to Collections: The bank can then sell this unpaid debt to a third-party collections agency, which will then attempt to recover the funds you owe.
4. Reporting to Credit Bureaus: A collections agency will almost certainly report the delinquent account to the major credit bureaus—Experian, Equifax, and TransUnion—as an unpaid collection.
5. Negative Credit Impact: Once the collection account appears on your credit report, it can significantly lower your credit score and may remain on your report for up to seven years.

How Much Will a Debit Card Affect Your Credit Score?

While a debit card doesn't directly influence your credit score in the way a credit card does, certain related activities can have an indirect effect. Here are a few key points to consider.

• No Direct Impact: Your debit card transactions are not reported to the major credit bureaus. This means regular, responsible use does not help you build a positive credit history over time.
• Overdrafts and Collections: If you overdraft your account and fail to pay the fees, the bank may send the debt to a collection agency. This negative item can then appear on your credit report.
• Missed Opportunities: Relying solely on a debit card means you miss the chance to build credit. Using a credit card responsibly is a primary way to establish a strong credit history.

How You Can Avoid a Debit Card Affecting Your Credit Score

Avoid Overdrafts and Fees

Overdrawing your account can result in unpaid bank fees. If your bank sends this debt to a collection agency, it can be reported to credit bureaus and negatively impact your score. Regularly monitoring your balance helps prevent this from happening.

Understand Overdraft Protection

Be aware of how your bank's overdraft protection works. Some programs link to a line of credit, which is a loan. Using this credit line could be reported to credit bureaus, so it's crucial to understand the terms of your agreement.

Choose the Right Card to A Debit Card

Improving your credit score is always possible and achievable with consistent effort. Your score plays a crucial role in your financial life, and taking specific, proven actions can lead to meaningful changes in as little as three to six months.

• Monitor your credit reports regularly. You can obtain free credit reports from all three major bureaus to check for inaccuracies and track your progress.
• Establish automatic bill payments. Setting up automatic payments ensures you never miss a due date, which is the single most significant factor in your credit score.
• Reduce your credit utilization ratio. Aim to keep your balance below 30% of your total available credit by paying down balances or requesting a credit limit increase.
• Become an authorized user. If someone with a strong payment history adds you to their credit card, their good habits can positively impact your score, provided the account reports to all bureaus.
• Diversify your credit mix. Lenders like to see that you can responsibly manage different types of credit, such as revolving credit from cards and installment loans.
• Limit hard inquiries. Space out your credit applications and use prequalification tools when possible to avoid temporary dips in your score from too many inquiries at once.

The Bottom Line

A debit card transaction is a direct withdrawal from your bank account. Since it doesn't involve borrowing money, it has no impact on your credit score, for better or for worse.

Frequently Asked Questions

Can using my debit card for daily purchases build my credit history?

No, your debit card activity is not reported to the major credit bureaus. Only information from credit accounts like loans or credit cards affects your score.

Does overdrawing my bank account with a debit card hurt my credit score?

An overdraft itself doesn't impact your credit. But, if the unpaid balance is sent to a collections agency, that collection account can negatively affect your score.

Are there special debit cards that can help build credit?

Yes, some fintech companies offer "credit-builder" debit cards. These cards report your payments to credit bureaus, helping you establish a positive payment history over time.