Can debit cards help your credit score?

Can debit cards help your credit score?

When you use your debit card to make a purchase, you’re using money already in your bank account to make the purchase. Using a credit card, on the other hand, involves borrowing money from the credit card company. If you aren’t able to pay back the amount spent on your credit card within the allowed repayment period you’ll have to pay interest as well, similar to a loan.

With a debit card, you can only spend as much as you have in the account. Therefore there is no need to pay interest as you aren’t borrowing the money.

Using a debit card doesn’t involve any debt. Therefore information about the transactions isn’t reported to the credit reporting agencies, and it’s unlikely to impact your credit score. This may not be helpful if you’re trying to build a good credit score, as the credit agencies won’t have sufficient information on you. If you’re someone who can consistently able to pay off a credit card bill on time, this regular action can count as a positive incident on your credit history, boost your credit score.

Does closing a debit card hurt your credit score?

A debit card is usually issued when you open a transactional bank account to help you withdraw money from an ATM or use EFTPOS. Closing a debit card, therefore, means that you’re closing the bank account. This isn’t the same as either repaying a loan in full or cancelling a credit card, and this means it may not impact your credit score at all. However, there are a couple of situations that you should consider checking before closing your debit card account: 

  1. Direct debits: You may have provided your debit card or bank account details for scheduling automatic payments such as a utility or mobile bill. You’ll need to update the payment details to a different account before closing the previously linked bank account. Otherwise, the utility or mobile company may register a rejected payment against you, which may negatively impact your credit score. 
  2. Bank account overdraft: Some banks offer customers holding transactional bank accounts a facility to withdraw more than they have in their account, called an overdraft. This overdraft is a debt similar to a line of credit, except you don’t have to provide any collateral or security. If your account has an overdraft facility, it means transactions that exceed your current balance won’t be rejected. You may have to pay a fee or penalty for overdrawing your account beyond the limits set by the bank, which depend on multiple factors. The bank may also charge interest on an overdraft and, if it is not cleared within 60 days, can inform a credit reporting agency. You may not be able to close the bank account until you’ve cleared the overdraft.

Does losing your debit card affect your credit score?

Similar to closing your debit card or bank account, losing your card may not directly affect your credit score. You should, however, report the loss immediately to the bank and request a new debit card. If you don’t report the loss, you risk someone else fraudulently using your debit card and making unauthorised purchases.

If there are already suspicious transactions made on your card by the time you report the loss, you can request the bank reverse those charges. When the bank investigates the transactions, they may find you responsible for the loss through lack of care or security, especially if you can’t prove that you didn’t make the transactions. In such circumstances, the bank won’t repay the loss incurred through any unauthorised transactions. You should remember to update any automatic payments to reflect your new debit card details once you’re issued a new card.

Can you get a credit score on a debit card?

The short answer to “do debit cards affect credit score?” is unlikely. In general, your debit card transactions are not directly reported to a credit reporting agency, even if you end up overdrawing your bank account. As a result, using a debit card is unlikely to negatively impact your credit score. But it also means a debit card may not help you get a positive credit score or improve your current credit score. 

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Learn more about credit score

Do landlords check credit scores?

For landlords, credit score checks can tell if a potential tenant has a history of delayed or missed rent payments. Usually, a poor record of repayments is likely to result in a low credit score. Also, your credit history may include information from tenancy databases such as the number of times landlords have inquired about your credit score. 

If there are too many inquiries within a short time, landlords may conclude that you have had issues renting in the past.  However, there is no rule as to when landlords check your credit score. Some might check every time they receive a tenant’s application. In some cases, landlords may even rent out their property to tenants with a poor credit history if they can submit additional documents or sufficiently explain their situation and how they are trying to address it.

 What credit score do landlords look for?

Landlords may look for issues relating to repayment rather than a specific credit score, although a low credit score probably suggests that you’ve had repayment issues. In general, if your credit score is categorised good, very good, or excellent - which corresponds to an Equifax credit score range of 622 - 1,200, landlords may not scrutinise your credit history too closely.

Can I check my credit score without a driver's license?

In Australia, your driver’s license is the preferred identification document for credit reporting agencies. This means you may not be able to confirm your identity using another document, such as a proof-of-age card. You may have genuine reasons like concerns over identity theft for not wanting to provide your driver’s license number. Unfortunately, most credit bureaus won’t allow people to check their credit score without a driver’s license. 

If you don’t have a driver’s license, there’s a good chance you haven’t applied for credit in the past and don’t have a credit score at all. In case you are concerned about identity theft, credit reporting agencies can offer you paid packages that include insurance against identity theft. Such packages may also include monthly credit score checks or alerts whenever your score is updated.