Credit or debit card, which one helps me build credit?
Credit or debit cards may seem the same to many people, but the reality is that these well-known and widely used cards, although they are very similar, have a very different function when it comes to paying for a purchase, but as we mentioned before, their function is completely different.
A credit card is a form of credit, which means that you are borrowing money from someone else. In this case, the credit card issuer is your lender. When you make a payment for a purchase with a credit card, you are borrowing money from the bank to pay for the purchase with the agreement that you will repay the debt, including interest charges and fees that will be incurred later.
A debit card, on the other hand, is linked to your checking or savings account. When you pay for something with your debit card, the money you spent is debited directly from your bank account.
In other words, you are using your own money to pay for the item immediately. In other words, instead of having your money intact, you are spending it. Having the option of opting for a credit card.
Credit cards are revolving credit accounts, which means you have the option of carrying a balance from month to month while making only the minimum required payments instead of paying the balance in full when you receive the bill. In layman’s terms, the credit card as opposed to the debit card is what will help you build credit.
In addition, it is dangerous to have a debit card, because if your account funds are stolen they will be lost and you will not be able to recover them, unlike a credit card. In this case, if your credit card is stolen, it is the bank’s money that is directly at risk, not yours. Beyond that, credit cards generally have excellent fraud protection policies.
There is no better credit building option when it comes to credit building: only credit cards can help you build a credit history. The credit card issuer reports your activity to the credit bureaus, allowing you to build up credit age and payment history in a timely manner if you manage the account correctly.
The credit limit on your credit card also contributes to your revolving utilization, which can help your credit score as long as there is not a high balance on the account or over the credit limit.
Obviously, debit cards are not a form of credit because you are not borrowing money. Therefore, you are not making payments to a lender and therefore your activity is not reported to the credit bureaus. For this reason, debit cards do not appear on your credit reports and cannot help you build credit at all.
Remember, if you want to build credit, the best option is a credit card.