Debit cards are a convenient way to pay for purchases, but do they also help raise your credit score?
When you use your debit card to make a purchase, you’re spending money that’s already in your bank account. Using a credit card, on the other hand, entails borrowing money from the credit card lender. If you can’t pay off your credit card bill within the given timeframe, you’ll have to pay interest as well, just like if you took out a loan.
Do they raise your credit score?
No, debit cards do not raise your credit score in Australia. Unlike credit cards, debit card transactions are not reported to credit reporting agencies and have no impact on your credit score. A debit card is only beneficial as you can never spend more money than what’s available in your account, so there’s no interest to pay since you’re not borrowing any funds.
Although using a debit card requires no debt, the credit agencies don’t received detailed information about your transactions. Therefore, it’s unlikely to improve your credit score. If you’re trying to build good credit, this may not be helpful as the agencies won’t have sufficient information on you from consistent use of a debit card. On the other hand if you’re able to pay off a credit card bill regularly and on time ,this action can act as positive reinforcement for your credit history which will subsequently boost your score.
What do credit reporting agencies receive?
Credit reporting bodies in Australia collect and maintain a variety of information about individuals’ credit histories. The following information is typically reported to credit bureaus:
- Personal information: Full name, address, DOB etc.
- Credit account details: Different types of credit, name of credit provider, amount of credit limit etc.
- Credit enquiries: Credit applications made in the last 5 years.
- Negative information: credit defaults, overdue accounts, court judgments etc.
- Financial hardship: Repayment history information and financial hardship indicators.
- Additional information: Public available information (directorships, proprietor information)
Comprehensive credit reporting (CCR) in Australia now allows for the inclusion of positive credit information, such as on-time payments, which provides a more complete picture of an individual’s credit behavior.
What to do if you have a debit card
If you have a debit card, before you close the account, there are a few conditions that you should check. You may have supplied your debit card or bank account data for automatic payments like utilities and mobile bills. Before closing the previously linked bank account, you’ll need to change the payment information to a different account. Otherwise, the utility or mobile company may register a refused payment against you, which might harm your credit score.
Losing your bank card, as well as closing your debit card or bank account, has no direct raise or impact on your credit score. You should report the loss immediately to the bank and request a new debit card. If you don’t report the loss, someone else may illegally use your debit card to make unauthorized purchases.
If you report the loss before any suspicious transactions have been made on your card, you can request the bank reverse those charges. If you can’t prove that you didn’t make the purchases, the bank may determine that you are responsible for the loss due to carelessness or security inadequacy, especially if you’re unable to provide documentation. In such cases, the bank will not reimburse any losses incurred due to unauthorized transactions. When your new debit card is provided, please change any automatic payments to reflect your new debit card information.
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 will not harm your credit score. However, it also implies that using a debit card will have no effect on your current credit score or help you raise your credit score.
It’s important to remember
- Debit card usage is not reported to credit bureaus.
- Transactions made with a debit card do not affect your credit score, positively or negatively.
- Closing or losing a debit card also does not directly raise or impact your credit score.
It’s important to note that while debit cards don’t help build credit, they also don’t harm your credit score. If you’re looking to improve your credit score in Australia, consider using credit products responsibly, such as credit cards or loans, and ensuring timely bill payments
