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Credit Cards vs. Debit Cards: Impact on Your Credit

Credit Cards vs. Debit Cards: Impact on Your Credit

Credit cards and debit cards both have their place, but they affect your credit in very different ways. Here’s a breakdown to help you choose wisely.

How Credit Cards Affect Your Credit

Credit cards are powerful tools for building and maintaining credit because they’re reported to credit bureaus. Responsible use can boost your score:

  • Payment History: On-time payments improve your score (35% of FICO).

  • Credit Utilization: Keeping balances below 30% of your limit helps (30% of FICO).

  • Credit Mix: Having both revolving (credit cards) and installment (loans) accounts can enhance your score (10% of FICO).

However, missteps like late payments or maxed-out cards can hurt your score significantly.

How Debit Cards Affect Your Credit

Debit cards are linked to your bank account and don’t involve borrowing, so they’re not reported to credit bureaus. Using a debit card:

  • Won’t build your credit history.

  • Won’t affect your credit score, even if you overspend and incur overdraft fees.

  • Limits your ability to dispute fraudulent charges compared to credit cards.

When to Use Each

  • Use Credit Cards for everyday purchases you can pay off monthly to build credit and earn rewards. They also offer better fraud protection.

  • Use Debit Cards for cash-like transactions or if you’re prone to overspending, as they limit you to your available funds.

Pro Tip

If you’re new to credit, start with a secured credit card to build a positive history while using a debit card for most expenses. Gradually shift to a regular credit card as your score improves.

Conclusion

Credit cards are essential for building credit, while debit cards are better for controlling spending. Use both strategically to support your financial goals.