Buzz
Have you ever thought about how you could build credit without constantly being tempted to overspend? Maybe you're after the peace of mind that comes with using credit, while still keeping an eye on your actual cash balance, just like you would with a debit card.
Introducing a new solution: the debit-style credit card. This card might provide the ideal blend of benefits.
A debit-style credit card works in conjunction with a checking account. Its credit limit is tied to the balance in your account, which helps you avoid spending more than you can afford to repay. At the same time, it offers advantages like building your credit score and earning rewards for your purchases.
Consider it as an evolution of a few conventional methods for managing your spending.
Secured credit cards: These cards require a deposit to set your credit limit equal to that amount.
Charge cards: These cards require full payment of your balance every month. Some American Express cards still follow this model.
Optimizing credit card payments: While some people make a single payment per billing cycle, others prefer paying each time they make a purchase. A few startups once tried to automate these frequent payments, though they no longer exist—Debx was acquired by the competitor Debitize in 2018, and later Debitize was purchased by Trim in 2019.
Prepaid debit cards: With these cards, you decide how much money to load onto the card and can reload it when necessary.
Debit-style credit cards are not yet widely available. However, online banking app Zero has recently introduced the Zerocard, allowing users to switch the debit feature on or off. When activated, your balance is automatically paid off from your checking account each month. When deactivated, you can spend beyond your checking account balance, and the Zero card functions as a regular credit card.
One significant downside of this service: To get a Zero card, you must download the Zero app, which is currently available only on iOS. Also, if you fail to pay your balance in full, you’ll incur a hefty 24.99% variable interest rate.
If you already have confidence in managing your credit, a debit-style credit card might not seem appealing. However, for those just beginning to build credit, a card tied to your checking account could be a useful tool. Although these cards are still rare, it's likely that banking innovators will soon embrace this hybrid model.
