Does Using a Debit Card Increase Your Credit Score?

Are you wondering if using a debit card will increase your credit score? Debit cards are essential for keeping track of your bank account and daily expenses, but they don't automatically help you build credit. But do not worry, there is a clever technique to connect debit cards with building your credit history.

At Shriram Finance, we recognize the importance of a strong credit history and our loan products present a great chance to improve your credit history. By using a personal loan responsibly and making timely payments, you can meet your financial needs and pave the way for a healthier credit score. Let's explore this further.

Why Debit Cards Generally Don't Help You Build Credit

Using a debit card won't boost your credit score, even if you're a responsible spender. The primary reason lies in how debit cards function:

1. No Borrowed Funds: Debit cards draw money directly from your bank account, so there's no borrowing involved. Credit scoring assesses your ability to manage borrowed money and make timely payments, which debit cards can't demonstrate.
2. Lack of Credit Reporting: Debit card transactions are not reported to the credit bureaus, which compile credit histories. These bureaus focus on credit accounts and loans, which contribute to your credit score, but not debit card usage.

How to Build Credit?

How to increase your credit score with a debit card? Relying solely on debit cards to build or improve your credit score will not work. Instead, consider these steps:

1. Use Secured Credit Cards: Secured credit cards are an excellent starting point. They require a security deposit but allow you to establish a positive credit history as they report to credit bureaus.
2. Make Timely Payments: Paying your bills on time, whether credit card balances or loans, is vital. Consistent, on-time payments demonstrate financial responsibility.
3. Monitor Credit Utilisation: Keep your credit utilisation ratio low by using only a small percentage of your available credit limit. High utilisation can negatively impact your score.
4. Diversify Credit Types: A mix of credit accounts, such as credit cards and personal loans, can positively influence your credit history.
5. Check Your Credit Report: Regularly review your credit report for errors and discrepancies that could harm your score.

What is a Debit Card?

A debit card is a convenient payment method linked to your bank account, allowing you to access your available funds for purchases and ATM withdrawals. It's important to realise, too, that correctly using a debit card won't raise your credit score.

Will using your debit card responsibly increase your credit score? Debit cards don't need borrowed money or have an impact on your credit history, in contrast to credit cards. To boost your credit score, consider managing credit accounts like secured credit cards or loans, which are reported to the credit bureaus and demonstrate your ability to handle borrowed funds responsibly.

Debit Cards Are Used in Two Ways

1. Point of Sale (POS) Transactions: No credit is involved in purchases directly from your bank account.
2. ATM Withdrawals: Debit cards let you withdraw cash from ATMs linked to your bank account.

How Does a Debit Card Work?

Debit card transactions deduct funds immediately from your bank account, like a digital version of cash.

Benefits of Using a Debit Card

Using a debit card comes with several benefits, such as:

1. Convenient for daily expenses: Debit cards offer a hassle-free way to make payments, eliminating the need to carry cash.
2. Financial Control: With a debit card, you spend the money in the bank account, promoting responsible spending and preventing debt accumulation.
3. Security: Debit card transactions are secure and often protected by fraud prevention measures.
4. No Interest: Unlike credit cards, you won't pay interest on purchases made with a debit card.
5. Budgeting: Debit card transactions are recorded in your bank account, making tracking expenses and managing your budget easier.

Which is Better? Credit Card or Debit Card

When comparing credit cards and debit cards, it's crucial to understand their distinct purposes:

Credit Cards: Credit cards allow you to borrow money from the card issuer to make purchases. Credit cards allow you to borrow money from the card issuer, which is then repaid at a later date. They are reported to the credit bureaus, so responsible use can positively impact your credit score. Credit cards offer a credit limit, and your payment history and credit utilisation significantly influence your credit score.

Debit Cards: Debit cards are directly linked to your bank account, enabling you to spend your existing funds. While they offer convenience and control over your finances, they do not influence your credit score. Debit card transactions are not reported to credit bureaus.

Ultimately, choosing between them depends on your financial goals. For credit-building purposes, credit cards are the better choice.

Key Highlights

• Debit cards typically don't affect your credit score as they lack credit reporting.

• Credit scores rely on credit accounts like loans and credit cards, which involve borrowing and payments.

• Building credit involves using credit accounts responsibly, maintaining low credit utilisation, and monitoring your credit report.

• Debit cards are suitable for daily expenses and financial management.

Conclusion

In conclusion, while using a debit card is a practical way to manage your finances and make everyday transactions, it doesn't directly impact your credit score. To improve your credit history and potentially qualify for better financial opportunities like personal loans, it's crucial to consider building a positive credit history through responsible credit usage. Shriram Finance understands the importance of a strong credit history and offers personal loans tailored to your needs. Take the next step towards financial empowerment by exploring Shriram Finance's personal loan options today and start building a brighter credit future. Unlock your financial potential with Shriram Finance personal loans. Credit cards, when used responsibly, can help establish a positive credit history. You can improve your credit score by focusing on credit accounts, not debit card usage.