You're likely already familiar with debit cards and have a general sense of how they work. In our increasingly cashless world, you usually need some sort of card to pay for everything from books for class to snacks for study nights. But do debit cards build credit?
We'll cut to the chase: Traditional debit cards don't build credit. We hate to break it to you, but the old debit card your parents helped you get when you were younger isn’t going to do much to help you establish and build credit. That's the bad news. The good news is that the Fizz card is the exception. Let's take a closer look at what debit cards can and can't do and see how Fizz is a game-changer for students and young adults around the country.
Understanding normal debit cards
Simply put, debit cards are cards you can use to make payments. In most cases, you can also use them at an ATM to get cash on the spot. Debit cards are issued by banks and credit unions and are typically tied to a checking account. When you open up a new bank account, they're one of the first things you get.
The most important thing to know is that a normal, bank issued debit card connects to your bank account and pulls funds from your checking account. That means you can only spend what you have. That's what makes debit cards different from credit cards. With credit cards, you're spending borrowed money that you can pay back later. But with a debit card, you're limited to what's in your bank account.
There are some exceptions. For example, you could accidentally spend more than you have available. Depending on your bank, the transaction may still go through. The bank essentially "spots you” for your purchase. But be warned: banks typically charge overdraft fees when this happens. But most banks and credit unions offer a few overdraft protection options to save you the headache.
Normal debit cards don’t build your credit
Traditional debit cards do not build your credit because you're only spending what you have and you’re not taking out a line of credit in your name. To build credit, you need to borrow money.
Credit is essentially the ability to borrow money that you can use to buy goods or services. When you open a line of credit, you promise to repay that money later or over time, usually with interest. Because you're not borrowing any money when you use a normal bank-issued debit card, it won’t help you build credit.
There are many ways to establish credit history. Any line of credit can impact your credit score, such as student loans, personal loans, car loans, credit-builder loans or mortgages. But if you're just starting your financial journey, many of those options don’t make sense.
Credit cards, however, have been the go-to for young people wanting to build credit for the last several decades. They were the only option because traditional debit card activity doesn't help you build credit. But credit cards come with major pitfalls like overspending, debt, interest, and hidden fees, making them a pretty subpar option for students.
Establishing a credit history with the Fizz debit card
The downsides of a traditional credit card aren’t meant to scare you, but there’s lots you should be aware of. So many young people fall prey to the allure of what credit cards offer. And while some think it's the only way to establish credit at all, Fizz is the best solution out there.
Fizz makes it possible to build credit without using a traditional credit card. It's a way to avoid the dangers of a credit card, like sky-high interest rates and ridiculous fees. Best of all, it eliminates the issue of overspending.
The Fizz card is a debit card that helps you build credit. While you can't build credit with a traditional debit card, Fizz is the unique exception and one of the best options for students looking to take the right first step in the world of credit.
The concept is simple. When you sign up for Fizz, you connect your bank account(s). Unlike credit card issuers, Fizz doesn’t run a credit check, so you don't get hard or soft inquiries on your report and you won’t have to worry about getting rejected.
Once you get your card in the mail and add it to your Apple Wallet, you can start spending on everyday purchases. Fizz sees how much you have in your bank account and uses that information to keep you from overspending. You can only spend what's in your checking account. This helps you avoid debt and develop good financial habits.
How does Fizz build credit as a debit card?
When you sign up for Fizz, you get a line of credit in your name. When use the Fizz card to pay for purchases, you use that line of credit. But instead of having your purchases build up over the course of a month, your purchases are paid of every day from your linked checking account with our daily Autopay feature. With daily Autopay enabled, you can spend money as you normally would without having to think about paying a bill. You only pay what you spend, and it pulls from your checking account, just like your normal, bank-issued debit card. There are no interest rates or fees of any kind. It's hands-off and super simple.
But the good news doesn’t stop there. Because you pay off the balance of your Fizz card daily, your credit utilization stays low. Like a credit card company, Fizz reports your card activity to the credit bureaus monthly. Over time, you'll see your credit score climb as long as your account is paid off. It's the credit-building benefits of a credit card - without all the risks. The Fizz debit card is the everyday spending card that helps you build credit and become financially independent.
Best practices and tips for building credit
Tip 1: get a credit-building debit card like Fizz
Instead of worrying about credit checks, fees, and interest rates, get a Fizz card. It’s the easiest, simplest way to build credit in college, all while ensuring that you don’t overspend and go into debt. Everyone has to spend at least a little money - why not have it be with a Fizz card?
Tip 2: use your Fizz debit card as much as possible
The Fizz card is built as an everyday spending card. You can use it as often as you want! The daily payments will keep your utilization rate low, and using your card can help you take advantage of cash back offers around campus or your hometown.
Tip 3: set up daily Autopay
Daily Autopay makes it easier than ever to pay off your purchases. Fizz prevents you from overspending, and daily Autopay ensures you start every day with a $0 balance on your Fizz card and an accurately reflected checking account. It prevents you from missing payments, too.
Tip 4: take advantage of SafeFreeze
SafeFreeze is a Fizz feature that automatically locks your card if you miss a daily payment. Whether you forget or there's not enough in your linked bank account or are using your card without daily Autopay, SafeFreeze is another way Fizz makes it impossible to overspend and get into debt. It ensures that you pay off your balance before you spend another dollar.
Tip 5: keep your accounts open
The longer your credit history, the better your score will be. Closing any line of credit can have a negative effect on your report. The age of your credit accounts makes up roughly 15% of your credit score, so hold onto your credit-building debit card as long as possible.
Get a Fizz card today!
While you can't build credit with a traditional, bank issued debit card, you can with Fizz. Fizz is a credit-building debit card that will put you well on your way to financial success. It's the perfect option for students because it prevents overspending and has no interest rates or fees.
Getting started with Fizz is easy. Just download the Fizz app to sign up. You’ll just provide some personal information, link your bank account, and you'll be good to go. Your card will come in the mail, but you can also add your card to Apple Wallet to start using it immediately.
Use your Fizz card every day for purchases big and small. You won’t have to worry about debt or overspending. Daily Autopay will take care of daily purchases, and we'll report your on-time payments to credit bureaus at the end of the month to help you build a positive credit history. It's as easy as that! Download the app and get started with Fizz today!
Sam is a Kenyon College alum and is head of content at Fizz. He's been a go to personal finance resource among his peers since getting his first credit card during his sophomore year of college. He hails from Washington, DC, loves all things aviation, and currently lives in Los Angeles.