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Building Credit With A Debit Card. Is It Really Possible?

- Nov 2, 2021 Banking, Building Credit, credit1 comment

Some people refuse to get a credit card. In many cases it’s for good reason as they know themselves (or their wife) and believe that credit cards will drag them into debt.  

But the issue is that credit cards, aside from being good for the perks and rewards they provide, are also the best and most common mechanism on how to build credit.

So that takes us to the question- Can I build credit with a debit card just as well as I would with a credit card?

Lately, some new apps and banks have popped up claiming they issue debit cards that build credit. Is that really true? Let’s dive in and see.

Extra

Extra claims to have the first debit card that builds credit. For the privilege of building your credit they charge you $7 a month. Extra doesn’t provide their own bank account. Rather, they will connect with your existing bank account and debit your account as you make purchases on the Extra card. You can only spend on your Extra card whatever funds you have available in the bank account you connected.

Will Extra help me build credit?

Extra will report to the credit bureaus. But the issue? They only report to Experian and Equifax and not to TransUnion. So that’s already one major minus. 

Another minus is the monthly fee. Although $7 a month is not expensive, it’s not cheap either. Closing your first tradeline is bad for your credit and closing your only tradeline is even worse. You’re going to live for 120 God willing. It’s hard for me to believe that at 120 you still are going to have that Extra, $7-a -month-fee card open…

Pros

  • Earns rewards

Cons

Chime

Chime is an app-based bank account that allows you to link their Chime Credit Builder debit card. At any time you can transfer money from your Chime bank account to your Chime Credit Builder debit card and use the funds to shop. 

Will the Chime Credit Builder help me build credit?

Chime will report monthly on-time payments to all three credit bureaus, helping you build credit. 

The big catch is that in order to qualify for a Chime Credit Builder debit card you need to first have a $200 direct deposit to your Chime bank account. And going forward, you need a minimum of one $200 direct deposit per year to keep the card open. Between you and me, even if you currently get paid through direct deposits, will you still be getting paid that way in 5 years from now? If you fail, the card will be closed and your credit will be killed!

Pros

  • Reports to all three credit bureaus
  • No monthly fee

Cons 

  • $200 direct deposit needed once per year
  • No rewards on purchases 

Sequin

Sequin is another startup offering a debit card that reports on your credit report. Sequin works similarly to Extra. They will connect to your existing bank account and debit money as you make purchases. When signing up you will need to provide Sequin with a refundable security deposit and the amount you provide will be your credit limit. 

Will the Sequin debit card help me build credit?

The major con here is that as of today, the Sequin debit card only reports to the Experian credit bureau, not to Equifax and not to TransUnion

When you apply for a mortgage, the bank will pull your credit from all three credit bureaus. Having a credit score only at Experian will not help you much. It is highly recommended for you to build credit with all three credit bureaus, not only one. 

Pros

  • No monthly fee

Cons

  • Only reports to Experian, and not to Transunion or Equifax
  • May not be offered in your state (they currently are available in 36 out of 50 states) 
  • Security deposit needed 
  • They only offer a digital card 
  • No rewards

Conclusion

So to sum it up, it would be very nice if there would be an option of building credit using a debit card for people who don’t want to use credit cards. 

Sadly, as of today, I don’t see any option that is a real solution to building reliable credit using a debit card. 

The best would be if one of the big banks like Chase, Amex, etc, (or maybe Elon Musk) would offer such an option. That would make it much more established and reliable (and hopefully less strings attached). 

The reason the banks don’t want to offer it is probably since it’s not profitable. The banks make the big money through interest payments paid on traditional credit cards – which is exactly why you don’t want the credit card. But the banks just say – too bad!

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Sam Sam has nearly a decade's worth of experience educating his many readers on everything credit. Sam spends his days checking out credit cards for a full report, from the minute benefit details to the shebang of welcome bonuses. Plus studying the ins and outs of building proper credit. It’s his favorite pastime and he loves sharing it with others.

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