Debit card trying to talk to credit score

Does a debit card affect my credit score?

While credit cards can impact your financial standing, a debit card has no impact whatsoever on your credit score. The only way to build a credit score is to apply for and use credit responsibly. Whether that means using credit cards or other forms of paying for things. Every time you borrow money and pay it back on time, you’re helping to build a positive credit history. And each time you are late or miss a payment, you’re hurting your score.

Difference between a Debit card and a Prepaid Debit Card

When a bank account is opened, the bank will send you a debit card that is linked to that bank account. It acts exactly the same as going to the banks ATM, inside the bank or if you still have it writing a cheque – Its basically giving you access to your own money.

A Prepaid debit card kind of works the same way in that you can use it wherever you see the VISA or Mastercard symbol. The main difference is that the prepaid card is not tied to your bank account. You’ll need to deposit funds into the prepaid account and you can then use upto the same amount to make purchases. Think about like having the benefits of a piggy bank but without being detrimental to piggies!

The other subtle point worth mentioning is that there is no cost to having a debit card. Banks see them as a great way for their customers to access and use the bank account. Quite often, although changing now, the providers of prepaid debit card are not banks. They started off a regular businesses albeit in compliance with local financial regulations. As a business they will need to make money too so typically you will have a monthly or annual fee to pay. The route it seems for the bigger prepaid companies is to apply to become a bank where they can then offer credit and loans, effectively more profitable for them so always check as the line could be blurred.

Can I get a Prepaid Debit Card if I have a Limited Credit History?

Many people get turned down for a standard bank account. And sometimes you don’t have to have a bad credit score to be denied a bank account. In this case, you can get a prepaid debit card. These cards are typically linked to either the VISA or Mastercard network meaning there are many places that will accept it.

The good news is that if you have a limited or bad credit history you can still be approved for a prepaid debit card. As long as you can prove identity and residency, you can be approved for a card. Note, the difference, unlike a credit card where if your credit history is terrible, it’s going to be difficult to get approved for a credit card. In fact, your credit history and score may be the determining factor in your ability to get approved for a credit card.

A Debit Card Cannot Help You Build Credit

You may have seen the commercials on TV advertising how you can improve your credit score by using a debit card instead of a credit card. The problem with this is that no matter how responsibly you use a debit card, it will not help you build credit. A debit card is a type of plastic that allows you to go into an ATM and withdraw money from your account.

As with credit cards, when you use a debit card, funds are withdrawn from your bank account. The debit card will allow you to buy items online or in a store, but it will not help you build credit.

Will being refused a prepaid debit card affect my credit score?

No, not at all. In relative terms the number of people refused a prepaid debit card is low. It is a good idea to check whether the account has actually been declined or just that the setup process hasn’t finished. A number of possible reasons could be:

  • It could be that the address given during registration is different to the one the card is sent to
  • The registration process hasn’t been completed properly. Usually after given the website some basic contact details they will send an email to the address given to verify the address is valid. If any of these are not completed
  • Have you loaded funds onto the account

Will Using a Debit Card Impact my Credit Rating?

No, using your prepaid card will neither be positive or negative for your credit score. A debit card has some compelling reasons to be used. These may be things like it has been difficult for you to get a credit card, use at times where you don’t want to use your credit card that has a large limit such as going on holiday, or even making purchases online.

When to use a debit or a credit card

If you have the luxury of having both a debit card and a credit card then you should know what your plan is when it comes to deciding which card to use when.

Use case 1 – Online

Many folks are purchasing more and more now online. To us sitting at home accessing the world wide web we could be making a payment to someone quite literally on the other side of the world.

There are various takes on this. Some say go with the credit card because whatever happens the credit card company will intervene and even refund you if the product you purchased came out faulty. Others might say go with the debit card. In particular one that is not linked with your bank account for smaller purchases, as an example, say under a hundred Pounds or Dollars and keep the debit card topped up to only a 100 or so.

That way if your card details were ever breached and someone tried using your card. They would at best only be able to scam a hundred. Whilst with a credit card if someone got hold of that and you didn’t realise. Then someone could be making purchases right upto your credit limit. Credit card companies love to increase credit limits periodically for good responsible credit card holders. So always good to keep those accounts as safe as possible.

If you’ve never used a credit card before, the idea of getting one can be daunting. What do you need to do to get a good credit score? What do the terms revolving credit and installment credit mean? How do you know if a credit card is right for you? Here we’ll answer all your credit card questions! First, you should know how credit cards work. The credit is a revolving line of credit, which means that you’re borrowing money from and paying money to a credit card company. You can borrow up to a certain amount of money and then pay it back, minus a fee.

Use case 2 – Immigration

You have decided to take a big life changing event and immigrate to another country. When new you will have no credit history with any of the financial institutions in that country. A prepaid card can help in the first instance. Typically, you will also get an account number and sort code similar to a bank account. This will be useful to pay rent

So there you have it. One thing that isn’t directly relevant. However, is useful to say is that its not cool to see credit on your credit card as ‘free money’. If you do not pay back the full amount on your credit card, you’ll have to pay interest on the remaining sum. With some rates nearing 30% APR you should be very wary in overspending this way. It will also show up on your credit history. This would also lower the chances of you getting further credit later on.