Should I switch from debit to credit cards to increase my credit score?
May 11, 2020

Dear Frost,

I have two credit cards, one I barely use and the other that is my go-to. I’m young and want to get a new car soon and possibly a house in a few years. I have a good credit score (645) but I want to work toward building it higher. What should my debit vs. credit strategy be? Is there a good reason to have a debit card anymore? Should I be getting rid of my debit and replacing it with another credit card? — Credit Curious

A semi-circle scale showing Credit Score, with red to the left, yellow on top and green on the right with a debit card on the green side.

Hi Credit Curious,

I’m hearing a few things going on in the subtext of your question, so I’ll try to address each one. First, I’d recommend you keep in mind a general rule for credit cards: Limit your credit card spending to less than 30% of your overall available credit. Your goal should be to keep it at 1%-10%, because the lower you keep that debt ratio, the stronger your credit score will grow.

Responsibly Build Your Score

That said, building healthy habits around using and paying off your credit card will build your overall credit score. That first credit card is going to be most important. It provides creditors (maybe someone who’s looking to give you a car loan or mortgage) a historical view of you being responsible by establishing credit, keeping low balances and not carrying debt for long periods of time. Plus, reasonable credit usage helps keep emergency funds available. I tend to recommend that you borrow for short-term needs and only dip into your emergency fund for longer-term needs.

Low-Interest Options

However, I’ll throw one more idea into the mix here: If you do have a big, immediate, short-term expense—for example, needing to replace a water heater—you might consider a Personal Line of Credit. The interest rate will be much lower than most credit cards, and that kind of debt is scored higher on a personal credit rating than carrying a balance on your credit card. (It also is great for debt consolidation! You haven’t asked about that directly, but it’s good to know that when you do have some savings, you can use it as collateral to get approved for the PLC.)

Building healthy habits around using and paying off your credit card will build your overall credit score.

Keep That Debit Card

The question about getting rid of your debit card surprised me. Don’t replace cash with credit! Especially multiple credit cards—for the sake of your credit score and managing payments, I recommend one for using regularly and paying off to build your credit and one that’s only in case of real emergencies. Plus, the old saying still goes: Only use credit when you need it. Now, if you can and do pay it off every month, you can avoid using debit for certain purchases. However, most younger people who are newer to using credit fall into this temptation to spend more than you really intend. Before you make the decision to try it, be sure you are committed to a budget so you’re less likely to overspend. Check in with yourself and your statements monthly, making sure you’re not using available credit just because you have it. Also mark any emotional purchases or emergency spending that was not baked into your budget, as these are types of purchases that can get people into credit card trouble. Always ask yourself: Will I have income next month to pay off whatever I buy on credit? With debit, you can only spend what you have, and that’s never a bad way to go.

Share This Advice With Your Friends and Family
More from Ask Frost
Research shows those who aren’t afraid to talk about their money questions are twice as likely to have better financial health than those who keep quiet. So, we’re collecting your questions and sharing sound advice from our bankers.
We’re Here to Help

Visit with a Frost banker for more immediate guidance on your financial life.

Give us a call at (800) 513-7678