![]() ![]() For example, if you make a purchase of $1,500 for a laptop at a store and only have $1,450 in your checking account (and you're charged a $32 fee if you overdraw your account) your total amount spent would have been $1,532 when your bank's fees and overdraft policies begin to apply or your transaction may be declined. In some cases, it may be more worthwhile to use your credit card for purchases that could result in overdrawing your checking account. However, overdrafts and insufficient funds for your checking account aren't reported to the three credit bureaus. If you were to make a purchase, ATM withdrawal or have an automatic payment go through that exceeds the amount of money you currently have in your checking account, you may overdraw your account. When making a large purchase that may come close to exceeding the amount of money in your checking account, you may be better off using a credit card. Keeping balances below 30% of your credit limit could help your score. This is the ratio between the total balance you owe and your overall credit limit to see how much credit you're using. If you choose to close your account or change banks, your credit score won't be affected as debit cards don't contribute to your credit utilization ratio. Debit card purchases are made with your own money while credit card purchases are made with funds used against a credit line approved by a credit card issuer. When you make a purchase with a debit card, the funds are deducted from your checking account. Unlike credit cards, debit card activity isn't reported to the three credit bureaus (Experian™, Equifax ® and TransUnion ®) that monitor and provide access to your credit report. This can be especially helpful if you actively use both debit and credit cards but want to improve your credit score while avoiding interest charges and extra fees. ![]() By understanding how your debit and credit cards affect your finances and credit score, you can pinpoint when it is best for you to use a credit or debit card for specific purchases. Debit and credit cards may function similarly, but only the activity from credit cards contributes to your credit report.
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