General Question

onesecondregrets's avatar

Does having only a debit card do absolutely nothing for establishing credit?

Asked by onesecondregrets (2583 points ) February 13th, 2009

And if the answer is yes, it does shit.
What is the BEST way to go about establishing credit?

And would applying for a credit card be a good or bad idea?

I have a job, a weak but steady income. I have a bank account (checking account only) and a debit card.

Adviceadviceadviceplz.

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23 Answers

TenaciousDenny's avatar

It sounds like you need to get a credit card. Just pay most of the balance off every month (I think keeping a small balance is better than paying the entire balance off every month, but I’m not 100% sure of this). Using a debit card doesn’t really do anything for your credit score, as it is pretty much the same as paying in cash. There is no creditor-debtor relationship involved in the transaction; it’s just paying with money that you already have.

If you have a cell phone bill, rent, utilities, etc., that’s another way to establish credit.

JoeyDesignsStuff's avatar

TenaciousDenny is right; carrying a balance between (I believe it is) 5% – 7% of your credit limit while making more than the minimum payments regularly is the best way to build credit (without buying a house or something).

tennesseejac's avatar

plus, if you ever travel you will need a credit card to rent a car or get a hotel room

you can easily get a low limit ccard from the same place you get your dcard

laureth's avatar

The best way to establish credit is to establish credit. Debit is not credit, so would have no effect.

cwilbur's avatar

The way you establish credit is to borrow money and pay it back. When you use a debit card, you’re not borrowing money.

Among the things the credit agencies look at is how much of your available credit is used on a monthly basis and whether you pay less than, equal to, or more than the minimum payment.

So one of the strategies you can use is to get a credit card, use it consistently but not frivolously, and pay it off except for a small amount each month. For instance, you’re probably already buying gas for your car and groceries, so if you put them on the credit card and pay it off each month, you aren’t increasing your overall cost of living, but you’re establishing your credit.

asmonet's avatar

@tennesseejac: You don’t need a cc to rent a car or a room. They just put a hold on your account immediately, instead of charging it to the cc at the end of your stay or rental period.

cwilbur's avatar

@asmonet: some car rental agencies will only rent to people with a credit card—the legal ramifications of credit versus debit makes a difference to them.

The only reason to not have a credit card at all (as opposed to not using a credit card) is if you can’t control yourself with them. Otherwise, it’s an interest-free loan for 30 days, and it gives you a lot more flexibility with your cash flow.

EmpressPixie's avatar

While keeping a balance on the card might build your credit faster, getting a card and paying it off every month will build credit just fine and will certainly cost less.

onesecondregrets's avatar

Awesome answers, thank you everyone.

And so if I go to my bank and ask if there are any credit cards I would be eligble for, they could help me as to attaining the best one for me? Or what is the best way to obtain a credit card? And one that’s not scam-y. :/. I am so inexperienced it’s disgusting.

K scenario. Say I get a credit card. I use it solely for gas, groceries and my phone bill. These are the only charges, I pay the balance of, to the bank, on time. This would help establish my credit safely?

EmpressPixie's avatar

Yes, that would establish credit safely.
Paying on time is more important than paying it off entirely.

The bank is going to push their in-house card. Admittedly, there are advantages to using an in-house card (usually you can pay online quite easily and you only have to deal with one bank). You’ll probably get a low limit to begin with, but they will increase your limit as you keep your card and pay it off.

EmpressPixie's avatar

Here is a good article at the Consumerist about getting your first credit card.

Here is an even better looking article.

My first card was shared with my parents. I piggy-backed off of their credit while building my own. I don’t know if this is an option for you or if you would event want to do it.

galileogirl's avatar

If you have been with your bank for a while and have no overdrafts or other irregularities, you should apply for a card with them. They will generally give you a low maximum balance $250–500. Then you use the card for up to $100 for bills and pay it off as soon as it lands in your mailbox. Eventually the will raise your credit limit.

At least that’s how it used to work.

My daughter has an ‘emergency’ card that she has never used. In November she got a snotty letter from the credit card company saying It’s obvious you don’t want to use this card so we are going to close your account. To me this is a change in attitude toward customers. In the past, if your account is dormant too long, they make special offers to start you up again.

I wouldn’t go to an account that charges an annual fee. If you can’t get a card through your bank then wait til next year. If you apply to a lot of companies it shows up on your record and looks bad.

bristolbaby's avatar

as others stated, try your own bank first – if that doesn’t work, try a couple of other companies, because without a credit history, some CC companies will automatically refuse

try larger stores that you may shop at – JC Penney, Sears, etc., although I don’t recommend them because they have high interest rates but everyone has to start somewhere

miasmom's avatar

I’ve hardly ever kept a balance on my credit card and have excellent credit, please don’t keep a balance, it is not wise because you are paying extra on that money, just get a card and pay it off each month. I like the idea of a card that gives you cash back, like Discover, you might consider finding one like that.

miasmom's avatar

Oh and my first card was with citibank, I got it at college, so I know they do give cards to young people without credit.

asmonet's avatar

@cwilbur: I’ve personally never run into that problem, enterprise took my debit card and when I worked at Hyatt debit cards were just as common as cc’s. Maybe with lower end hotels it’s different but from what I understand with hotels, it’s common practice to place a hold when it’s swiped at check in. Thanks for the info!

AlfredaPrufrock's avatar

You really want to get rid of that debit card for identity theft reasons, and get a credit card with a small credit limit. Pay it off monthly.

scamp's avatar

I have rented cars and even rvs with only a debit card with no problem whatsoever several times. I’ve rented from Budget, Hertz, Avis and Enterprise.. they picked me up!! And I have never had a problem with a hotel room either. I stayed at the Hilton, Marriot, and several other places, and no word was mentioned about a cc.

I’ve never had a credit card, and have no intention of geting one. If I can’t pay for something, I just don’t buy it. I wait until I have the money to pay in full. I am one of the few people in my age bracket who is debt free, and I like being able to say that.

galileogirl's avatar

The car thing was prevalent over 10 years ago. When I didn’t have a car in the mid-90’s, I rented a car a couple of weekends a month at a Hertz near where I worked. At 1st the only way they would allow a debit card is if they put a $500 hold on my checking acct. Also I ran into a couple of times traveling where they wouldn’t take a debit card for a hotel reservation so I had to pay in advance for the room. I was traveling a lot then and that more than anything made me get a credit card.

bristolbaby's avatar

“I like the idea of a card that gives you cash back, like Discover, you might consider finding one like that.”

The massive retail store Sears produced this card in 1985 and maintained 50+ million cardholders. Now, the card is run by a subsidiary of Morgan Stanley.

cwilbur's avatar

@asmonet: the last few times I rented cars (the last one would have been in 2002 or thereabouts), Hertz and Avis both required credit cards, not debit cards. Maybe that’s changed since then; maybe Enterprise has had different policies all along.

I’ve never had a problem with hotels and debit cards.

@scamp: credit cards aren’t just about buying something you don’t have the money for on-hand. They’re a really useful tool for managing your cash flow. And remember that “debt free” also applies to things like mortgages—or are you planning to rent, and live at the mercy of landlords, for the rest of your life?

unlvrebelx's avatar

“You really want to get rid of that debit card for identity theft reasons, and get a credit card with a small credit limit. Pay it off monthly.”

A few things wrong with this…..you really don’t need to have a small limit unless you have small income. In fact, too small of a credit line may tell the credit bureaus that you can’t get more credit….Just take the line the card gives you…and NEVER lower your line, that also can negatively affect your score.

Also, using a credit card and paying off the card monthly could, and probably will, lead the credit bureaus to believe that you have more debt than you do, as well as lower your credit score due to having too high a % of unavailable credit left on the card.

Not wise….I only tell people that like this method or do it to get “points” from their card, to pay off the card immediately, or as soon as you can after making a purchase. The credit bureaus don’t do averages…so if you have a balance, they assume its debt, not revolving purchases getting paid off by cash flow.

SeventhSense's avatar

Sooner or later you will run into a problem without a credit card. Many car rental places will use a debit card with a Visa/Mastercard Logo while putting on hold a large chunk of cash in your checking account which is not available for use until the car is returned and even then may be held for over a week. In a large city most always they will accept nothing less than a credit card.

You can most always establish credit with deposit type credit line. For example, you deposit 100 and they match your funds plus some. The limit may be 350.00. Once you establish a consistent payment history they may raise your limit and you will start getting other offers for non deposit type cards at better rates.

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