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10 Jan 2012

The Author

Henry Butman
Henry Butman is a rising senior at Bates College in Lewiston, Maine, where he majors in English and psychology. After graduation, Henry plans on returning to Copenhagen, Denmark, where he studied in the Fall of 2010, to conduct research in the field of Positive Psychology. He hopes someday to combine his affinity for writing and traveling to expand the intercultural appreciation necessary for continued, successful global integration.
Can A Debit Card Help Your Credit Score?
24 Comments
Debit Card Help Credit Score

As many PerkStreeters know, using a credit card can often be a one-way ticket to incomprehensible debt and, in turn, a plummeting credit score. The caveat here is that many people also hang on to their credit cards solely to build credit.

A debit card, on the other hand, helps you live within your means by ensuring you’re spending only money you have in the bank. But can it also be used to improve your credit score? Not yet. Suze Orman, one of PerkStreeters’ favorite financial adviser’s, is looking to change that.

The Approved Card

Orman, who you might know for her various financial publications or for her show on CNBC, has taken a step directly into the financial services industry by announcing her very own prepaid debit card to kick off the 2012 calendar year: “The Approved Card.” And while her primary goal is to help people get out of debt by choosing to use debit instead of credit — a goal we echo here at PerkStreet — the card may actually help consumers fix their credit scores over time, at least with one of the reporting bureaus, effectively changing the rules and making debit cards even better.

Another Celebrity Prepaid Card?

I know what you’re thinking. Prepaid cards have a rep for being a pretty raw deal when it comes to fees — especially when compared to PerkStreet’s unlimited rewards. And prepaid cards branded by celebrities have and even worse track record. Remember the Kardashian Kard? (It was canceled almost immediately because it presented such a raw deal.) The rapper Lil’ Wayne recently launched another prepaid card called the Young Money Card. (Where do I sign up for that? Not. Wow.) But Orman is a financial expert, so perhaps this will be different? Time will tell.

Why This MIGHT Lead to Debit Cards that Build Credit

By partnering with TransUnion, one the three largest credit bureaus in the US, users of the Approved Card will have a year of free, unlimited access to their credit score and credit report. Additionally, TransUnion has agreed to collect data from Orman’s customers, evaluating spending habits in an effort to find a way for them to impact their scores. If that goes well, and TransUnion changes the way they calculate credit scores, the other major bureaus could potentially follow suit.

The Federal Trade Commission has mandated that everyone have access to a truly free credit report every year via the site AnnualCreditReport.com, but this partnership between Orman and TransUnion is more robust.

According to The New York Times, Orman said, “We are rewarding people for having credit and punishing people who pay in cash. I want to change that paradigm.” Even if the data collected by TransUnion reveals significant improvements in spending, The Times doubts it would have a significant effect on individuals’ credit scores.

Why We Like the Idea of Debit Cards that Build Credit

Debit cards that help you build credit are an interesting idea. At PerkStreet, we don’t run a credit check on new customers because we don’t see a poor credit rating as an indication of a poor customer. The problem with credit is systemic, not individual; if you’ve suffered at its expense, we welcome the decision to use debit and make smart financial decisions. If we could find a way to get responsible debit card use to help people with their credit scores, we would do it in a second.

Why shouldn’t your responsible decisions be reflected on your credit score? We’ll see what happens with Orman’s card; the road for prepaid debit cards is often a rocky one. The Times reports the venture may cost Orman tens of millions of dollars of her own money before becoming self-sustaining.

But if the card succeeds and TransUnion decides to notch up scores in response to positive spending trends, it will be one more reason to save loans and credit for your purchasing a home and the worst-case emergency scenario (unless you’ve already saved your emergency fund), and do the rest of your spending with a trusted, safe debit card.

Time Will Tell

Whether you prefer a prepaid debit card like Orman’s or a cash-back debit card with a linked checking account like that from PerkStreet, you’ll only ever accumulate wealth by spending (and saving) your own money.

It will be interesting to see what long-term effects the card’s success may have. But hopefully, in the hands of a trusted financial adviser, if Orman maintains lower rates and consumers aren’t put off by the Approved Card’s fees, the prepaid debit card could change a damaged part of our financial system.

Should debit card spending positively (and, conversely, negatively) impact your credit score? How do you think that would or should work? Meet us in the comments section below and share your thoughts.

24 Comments
  • Jeff S.

    It’s my understanding, and was stated in several articles, that Orman’s Approved Card will NOT give free access to one’s FICO Score but ONLY unlimited access to one’s credit report.  Can you verify this?

  • Sunshine25

    > 
    we don’t see a poor credit rating as an indication of a poor customer.

    Of course you don’t… because a checking account and a debit card have nothing to do with credit. Credit is never extended. So, what does using a pre-paid debit card have anything to do with credit? PerkStreet does have a check system I gather based on social? If so, you do reject customers that have delinquent overdraft accounts? I would think if she wanted to serve people, she work out a deal with you guys instead even if they have bounced checks. I just think its a ploy to suck money out of people that already have less resources than most of us, or are just incredibly irresponsible (perhaps even stupid?) with their money.

  • http://Twitter.com/KylePs80 Kyle Psaty

    By our understanding, you are correct, Jeff. The deal she has struck is with TransUnion — one of the 3 major credit reporting bureaus — ONLY. The other bureaus haven’t signed on. Thanks much for the question and welcome to The PerkStreet Blog.

    -Kyle

    Kyle Psaty
    PerkStreet Financial

  • http://Twitter.com/KylePs80 Kyle Psaty

    Sunshine, 
    You’re correct. We do use Chexsystems to verify that our potential customers haven’t misused their bank accounts in the past. By limiting our risk, we are able to preserve our ability to deliver our unparalleled debit rewards. It’s tough to guess at Suze’s motivations, though we certainly think highly of her as a staff here at PerkStreet. All our interactions with her have seemed totally genuine in the past. That said, you clearly are not alone in your opinion. Many in the media and blogosphere are questioning this announcement. It will definitely be interesting to watch how this plays out. Thanks much for sharing your thoughts. We certainly value them and appreciate your contribution to the discussion. Have a great evening. 

    -Kyle

    Kyle Psaty
    PerkStreet Financial.

  • Jeff S.

    Thank you, Kyle.

    You may want to update or edit your article to reflect this. As a PerkStreet customer, I’ve never been more satisfied. I’m glad I made the switch from my previous (and fee gouging) bank.

    - Jeff

  • wondering

    wondering……….. i think this would be a good idea, but i would stay with perkstreet. Suzy should also stay with perkstreet and boost this, because you get money back.  Walmart also has a prepaid debit card, but you don’t get money back. Suzy doesn’t really talk about being debt free like dave ramsey does. i think she is trying to start something that perkstreet already has, but to put her name on it.
    PERKSTREET IS THE WAY TO GO………….

  • Recovering in NJ

    Finally, a chance for individuals who have poor credit scores due to periods of unemployment where credit cards were used to help bridge the gaps against mounting debt. We had excellent credit until unemployment reduced our income by half and we couldn’t keep up with the mortgage and other essential bills. We’ve been paying all our expenses by cash for and are happy to do so to avoid accumulating more debt, however, we don’t have anything to fall back on in the case of emergency expenses. Although we’re now both employed our poor credit score prevents us from refinancing, applying for credit and getting loans. This is the first opportunity I’m aware of that will reward people for good financial behavior.

  • Sunshine25

    Whoever is managing the Twitter account – I don’t think it is her -is being extremely defensive and insulting. I hope its not her, but if it is Suze Orman, she has lost a lot of credibility.

  • CathyF7

    Since I’m just about out of debt (ON FRIDAY!!!! …except the house) and have no intention of getting into any more, I have no interest in Suze Orman’s debit card.  I can see a point to keeping a decent credit score since insurance and employers sometimes check it, but I think the concept is really out-dated and we need a “financial competence” score, not a “credit” score.  My score will drop once my mortgage is gone, but I will not be doing any borrowing in order to manipulate the score… I won’t even look it up.

  • http://Twitter.com/KylePs80 Kyle Psaty

    Thanks, Jeff. After reviewing it, I thought it was pretty clear, but I still made a few very minor tweaks. The thing to keep in mind here is that NOBODY knows how this will play out. But we’re hoping for the best-case scenario. 

    -Kyle

  • http://Twitter.com/KylePs80 Kyle Psaty

    Thanks for the props ;) Personally and as a personal finance blogger, I couldn’t recommend any prepaid cards to people who qualify for a more valuable card with fewer fees, like PerkStreet. However, the truth is many people have no other options to get the convenience of debit. 

    -Kyle

  • http://Twitter.com/KylePs80 Kyle Psaty

    Recovering in NJ, 
    That’s exactly what we like about this as a possibility. We don’t know what will happen with it — even if good debit card usage was something the credit bureaus started to take into account, the impact could be really minimal. And as we noted in the article, PerkStreet understands your situation completely and are proud to reveal that credit scores aren’t a factor in determining your eligibility. We may not be able to help you build credit (yet) but we’re more than happy to consider you for one of our cash back debit cards. Times are definitely tough for lots of people. 

    -Kyle

    Kyle Psaty
    PerkStreet Financial

  • http://Twitter.com/KylePs80 Kyle Psaty

    Great point, Cathy. It’s time we got back to the purpose of credit scores. PerkStreet is definitely all about reforming our industry using whatever influence we can garner. Fixing banking is a HUGE mission for us, here at the headquarters.

    By the way, it’s Friday. CONGRATULATIONS! 

    -Kyle

    Kyle Psaty
    PerkStreet Financial 

  • Sunshine25

    > are proud to reveal that credit scores aren’t a
    > factor in determining your eligibility

    If Suze Orman does pull off this TransUnion deal with credit report inclusion, doesn’t this have the potential to lock individuals out of banking permanently? What is to stop PerkStreet from performing credit checks for a checking account, if a pre-paid debit usage history is included in a credit report?

  • AJ

    No need to worship the FICO score, just don’t borrow any money.  Go read / listen to Dave Ramsey

  • Roberts

    Perkstreek already locks out some people who were/or still are drowning in debt, several overdrafts, and possibly some severely overdrawn/negative accounts or closed accounts. As Kyle said, IF it would ever get used on a credit report, it would probably be minimal. Credit reports are for companies, like for loans, to determine on their own your credit risk. Knowing how you spend on a prepaid debit card or prepaid checking account debit card (knowing how you spend on your own cash) is not enough for risk assessment.They want to see financial responsibility and making continuous, timely payments with all creditors. Suzie Orman Approved Card, like Russell Simmons card, Perkstreet, and other prepaid debit cards use the Bancorp Bank. Suzie provides a tool for those who can’t get a checking account; but willing to pay the monthly fee.(sometimes still lower than other prepaid cards). Perkstreet provides a checking account that relies greatly on the debit card and perks it gives us.(free with a single,monthly transaction). The Big Banks have a tool, or credit card, with some really great cashbacks, for those who manage spending awell; and, checking account for some reason.

  • Anonymous

    Suze Orman and her sycophants are trying to make silk purses out of the sow’s ear that is the Approved card.  They bad-mouth critics instead of trying to fix the card’s short-comings.  $3 just to have the card.  $2 to speak to someone to resolve a problem.  No rewards program.  No savings program.  And a nonsensical quest to build a FICO score.  You can’t build a credit score with a debit card because there is no credit extension.  Instead of pretending to be able to do the impossible, Ms. Orman might have used her reputation and clout to convince a major database provider to create a ‘Financial Responsibility Score’ based on on-time payments of regular bills and other financial obligations.  It is shameful to see Ms. Orman use her celebrity to foist a substandard card on a trusting public.  A consumer can walk into a check cashing outlet or an H&R Block office and get a prepaid card with a savings account paying 5% APY.    

  • http://pulse.yahoo.com/_THEQNHZK4OBXSSQFHEJTD2KNBM Chris

    I just want to get to the point where I don’t “need” Credit. So if that’s the case I will have my own “Credit Line” in my Emergency Fund and Perkstreet for everything else.

  • Anonymous

    Am I missing something here, I’m looking at the site and going so basicly it a debit card like I get from perkstreet, smartypig, or any other bank with no rewards at all, that charges me 3 dollars a month to use, gives me a a years worth at looking at my credit score; and 36 dollars a year if I use it once a month that I could put in a IRA or Saving account how is this exactly getting me out of debt again? I just stay with Perk Street even with out a job right now at lease I getting something in return for having them than nothing and giving money to have a debit card I can go to my local walmart and get basicly the same card

  • Robert

    technically, we’re all paying a fee, whether clear or hidden, dependin’ on how much money you got, how much you can earn interst, where and how you spend it, with what (debit, credit) card, and which earns the best cash back or miles or points for your spending. But, Suzie’s card may be a better product that other prepaid cards with more nasty and monthly fees for those who are denied a regular savings and checking account, includin Perks.

  • http://www.facebook.com/chris.cravens.589 Chris Cravens

    I was hoping that my Credit Score would be reflected whenever I use the “credit” button instead of the “debit” button when using my Perkstreet Card. Anyway I am going to be my OWN Creditor..since no Bank or Credit Extending Company really cares about my Interests and well-being as much as I do.

  • Noell6

    I’ve learned and gathered information about credit and how the reporting system works since about 1980. I’ve also worked for a Ford dealership as a sales rep and Finance Manager. And I can not figure out how using a debit card can build credit. A debit card just replaces money. You can’t over spend even if you wanted to. Does anyone have the inside scoop on how this will work?

  • http://dailyperk.perkstreet.com/ PerkStreet Mary

    Hi Noell6,

    This card doesn’t actually help you improve your score. It lets you monitor your FICO score so you can improve your ability to take out loans and get lines of credit. It may lead to debit cards that are linked to your credit score, but that isn’t the case yet.

  • ronald

    first off, the answer is no, debit is not reported to the bureaus, hence the name credit bureaus. we need credit because no one earns 36000 in one year just to self finance their vehicles, instead it goes to more important uses;however, I will say that the bureaus and banks are playing us by lowering our scores, therefore raising our rates and leaving us broke. I have had finance managers tell me “you have an impeccable payment history” , “you have enough income to cover your debts” , ” I don’t understand why your credit score is so low”, their words not mine. still the bureau and banks see my credit worthiness as risky. even when in 7 years I have missed only 3 payments and repaid them fully in 60 days. I have never asked for loan adjustments instead I have drastically adjusted my lifestyle. the credit industry is a beast that cannot be tamed, don’t try, stay away from it. use debit cards like I have learned to do, have 2 or 3 credit cards with a 0 balance just to play the credit bureaus and open a secured credit card and add money to it to increase your credit line the most you can. this behavior will reduce your credit use, teach you to budget and increase your score in case you stumble upon an impending necessity to borrow with credit.

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