Can You Use Your Debit Card As Credit To Build Credit

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Americans are increasingly pulling out their debit cards when they shop: Nearly six in 10 card payments (58 percent) are made with a debit card. Debit cards offer the convenience of credit cards without the risk of falling into debt.

Sometimes, you might notice the option to pay with “credit” when using your debit card. Choosing the credit option doesn’t make your debit card function like a credit card, though it does change the way the transaction gets processed. Using the credit option also doesn’t help you build your credit score.

Debit vs. credit: What’s the difference?

Debit and credit cards look similar — both are plastic cards with 16-digit numbers, expiration dates, magnetic strips and smart chips — but they work very differently.

A debit card is linked to your checking account. When you make a purchase with your debit card, the transaction amount is immediately deducted from your bank balance. You’re spending money you already have as if you were paying with cash.

A credit card is linked to a line of credit issued by a bank. When you make a purchase with your credit card, the balance owed on the line of credit increases. There’s no immediate impact on your bank balance. You’re borrowing money from the card issuer with the expectation that you’ll repay the full amount.

Can you use a debit card as a credit card?

If your debit card has a credit card logo on it—like Visa, Mastercard or Discover—you can run the card as credit.

To use your debit card as a credit card, select the “credit” option on the PIN pad or payment options menu. Since the card is processed as credit, you may be asked to sign for the purchase rather than entering your PIN as you normally would.

Some retailers make it hard for customers to use their debit cards as credit because of the higher merchant fees for credit transactions. If you’re unsure how to run your card as credit, ask the cashier for help.

What happens if you use your debit card as credit?

At the time of purchase, using your debit card as credit works similarly to using a credit card: You present your card, make your payment and go on your way. However, the transactions are processed differently on the back end.

Normally, when you use your debit card, the card information is routed to the debit network. Your bank confirms that you have sufficient funds to cover the purchase. Then, the debit network automatically authorizes, clears and settles the transaction. The purchase amount is immediately deducted from your bank account balance.

When you use your debit card as credit, the card information is sent to the payment processor, and then to your bank via the card network. If the transaction is approved, the funds aren’t transferred immediately. Credit transactions are typically processed in batches, so it may take a day or two for the funds to be deducted.

Can you build credit with a debit card?

Unfortunately, traditional debit cards won’t help you build credit. Your credit history reflects how responsibly you’ve borrowed and repaid money. You’re not borrowing money when you use your debit card, and your transactions aren’t reported to the credit bureaus.

That’s still the case even if you use your debit card as credit. Choosing “credit” at checkout only changes how the transaction is processed. You’re still spending rather than borrowing money you’ll repay later.

Some third-party services aim to help people build or repair their credit with their bank account and debit card transactions. For example, the credit bureau Experian offers Experian Boost, which gives you credit for on-time bill payments, such as your cellphone or utility bill.

What are the pros and cons of using your debit card as credit?

There are potential advantages to using your debit card as credit, but there are also some potential downsides.

How can you build your credit through purchases?

If you were hoping to improve your credit by running your debit card as credit, you’ll need to look to other solutions. However, there are still ways you can build credit with your everyday purchases:

• Use good credit-building practices. The best ways to build credit are often the most simple. Make sure you pay all your bills on time, keep your debt-to-income ratio low and don’t borrow more than you can afford.
• Get a credit-building debit card. Some debit cards are set up to help you build credit. Some services like Cred.ai can let you use a debit card and build credit at the same time.
• Use a credit card. If you pay off your credit card monthly, you can use your credit card for everyday purchases without potential negative consequences while building credit.

The bottom line

When you make a purchase with your debit card, you may have the option to run your card as credit. This means the transaction is processed differently, but in the end, the money still comes out of your bank account. You might want to use your debit card as credit to earn rewards or to protect yourself from fraud.

A debit card processed as credit is still a debit card, so it won’t help you build credit. If you want to establish or repair your credit, consider using one of the best credit cards instead.

Frequently asked questions

• Can I use my debit card as a credit card to rent a car?
  

  Most major car rental companies let customers rent a car with a debit card. However, you can expect to face more requirements than customers who rent with a credit card.

  The company will likely hold $200 or more in your bank account as a deposit, which means that you won’t have money to spend until the car is returned. You might also need to pass a credit check.

• Can I use my debit card if I have no money?
  

  If you don’t have enough money in your bank account to cover a purchase, the transaction may be declined due to insufficient funds. Depending on your bank, you may be allowed to make a purchase that allows your account balance to go negative. However, banks charge an average of $27.08 when a customer overdrafts their account, according to a recent Bankrate survey.

  To avoid a declined transaction or overdraft fee, keep a close eye on your bank account balance. Ensure you have enough money in the account to cover a purchase, whether you plan to use your debit card as debit or as credit.

• Does an overdraft hurt your credit score?
  

  Debit card transactions aren’t reported to the credit bureaus, so going into overdraft won’t directly affect your credit. However, if you don’t bring your account back to a positive balance, the bank may close your account and send the balance to a debt collector.

  Unpaid debt in collections can significantly negatively impact your credit score. The account can linger on your credit report for as long as seven years. To avoid damage to your credit, be sure to resolve overdrafts as soon as possible.