Debit Cards For People With Bad Credit
By Mory Brenner, Esq.
When banks first introduced debit cards they referred to them as check cards, for our discussion today that name offers us an accurate description. A debit card links to a checking or savings account at a bank. When you use it to purchase something the process reaches directly into the associated account grabs the money and transfers it to the merchant where you make the purchase, just as if you handed them a check and they cashed it. The debit card or check card makes the whole transaction even more convenient, one swipe of a card, maybe entering a PIN code, and the banking system does the rest. With a debit card you avoid having to write out the whole check and carry around a pack of checks. To make the system even better most debit cards tie into a major credit card system such as Visa or MasterCard, allowing consumers use of their debit card anywhere Visas or MasterCards might be accepted, these days that includes more establishments than would accept your personal check.
The fact that a debit card links directly to your bank account yields both positives and negatives. For a large purchase you just spend your money as long as the amount exists as cleared funds in the bank account. Compare that to a secured credit card, unsecured credit card or prepaid credit card where each assigns a cap of some sort. Some might point out that American Express cards boast of no spending limits, but our discussion today deals with bad credit and American Express does not grant cards to those with bad credit. The downside of a debit card linked to your account reveals itself when you do not want access to all your money. Imagine a crook with your debit card in their hand. It takes very little time for a professional thief to drain your account to zero. While I certainly point out that most debit cards offer fraud protection and in the end you may be reimbursed for the stolen funds, it might take 30-90 for that process to play out. Imagine all of your money gone for 3 months. You could not pay any other bills, if you already have bad credit the last thing you want is to lose the ability to make any payments, not to mention buy food and eat.
Sometimes the enemy attempting to withdraw all of your money appears not in the form of a pickpocket or con artist, but the man in the mirror. People with bad credit sometimes got there because they need help with budgeting problems. If you fall into this category it might be wise not to allow yourself the ability to spend all of your money. This instance represents a case where a prepaid credit card or secured credit card with a strict spending limit might stand as a better choice.
Debit cards, on occasion prove a bit harder to use than a credit card. Sometimes you need a PIN. Some businesses may not accept a debit card. I wouldn’t picture me jumping up and down waiving red flags about this, maybe sitting on the floor holding a little yellow flag. People using a debit card instead of a credit card end up without a problem for most transactions, but they need to be aware that those unusual exceptions will pop up from time to time. Sometimes the dollars involved come into play. Imagine someone trying to rent a car for a $30 a day for two days. They have $250 in their checking account and can easily pay for the rental. The car rental agency takes their debit card to meet its own requirement of the renter holding a major credit card, but they put a $500 hold on the debit card funds. All of a sudden the whole system breaks down, the customer has no money available for anything and they get rejected at the rental car counter.
Fees associated with a debit card compare quite favorably to its near cousin the prepaid credit card. However, the consumer still needs keep their guard up. Few, if any, banks charge a fee to get a debit card or an annual fee to keep a debit card, but start by making sure your institution follows the crowd offering debit cards without such fees. At one time fees for individual transactions never caused problems either, but recently things began changing. Many banks now charge per transaction fees, some quite high. You need to check with the bank where you have your debit card or plan to get a debit card. Learn their fees schedule and evaluate it with your own spending habits in mind. From there you can decide if everything looks good or you need to switch to something else. For some banks using the debit card as a credit card provides a means of circumventing the transaction fees. When the cashier asks “Debit or Credit?” you may be able to say “credit”, complete the transaction and avoid the fee, some banks will even encourage the practice as it avoids fees they owe on the transaction. Check with the bank who issued your debit card on exactly how these things work for your own debit card.
In general, debit cards may represent the fastest easiest way to obtain a plastic card with a Visa or MasterCard logo you can use for daily purchases, buy items online or rent a car. Debit cards demand fewer fees as a bonus. Aside from the occasional inconvenience of the rare merchants who refuse to accept debit cards, the more important issue for those starting with bad credit or no credit centers on the fact that debit card use does almost nothing to improve your credit score. I say almost just to avoid arguments with nit pickers who might argue about words like never or nothing without making exceptions. As a bottom line, if you want something to establish or improve your credit, select a secured credit card or one of the rare prepaid credit cards that reports to the credit bureaus.
For people who want access to merchants accepting Visa and MasterCard, either in person or online, including car rental agencies, which need no help with their credit score, debit cards make a fine choice. As long as you understand the risks of you or a bandit gaining access to your account and you keep an eye on fees you should be very happy with a debit card. Simply go to a local bank, likely most or any of your local banks, and ask if they have debit cards and get the details on fees. Remember these cards link to a savings or checking account, so you need to look into those fees as well. One bank may have the best debit card fees, but the fees on the associated account might make the combination a worse deal than the bank down the street with less favorable debit card fees but better checking account fees. Do you research, don’t overspend, guard your card and your PIN and you should find a debit card a nice convenience to have.