Using a debit card doesn't help you build a credit score, but it can teach your child a lot about good money management.
Can you build credit with a debit card?
A debit card will not help you build a credit score. This is because when you use a debit card (to spend money in-store or online, or to withdraw money from an ATM), this activity isn't shared with the credit bureaus that work on building your credit score (a number representing your creditworthiness). This means you can’t build credit unless you borrow money.
Does a prepaid debit card help build credit?
A prepaid kid's debit card like GoHenry doesn't help you build credit, but it can teach your child lessons about money management, including budgeting and tracking their spending – all skills which will help them learn to manage their money and protect their future credit rating.
Debit vs credit card
Credit and debit cards have some fundamental differences. A debit card takes your own money directly from your bank account. You use what you have available, which is different from borrowing.
A credit card gives you a line of credit, which is borrowing. When you use a credit card to buy something, you're borrowing money and have to pay it back to the card issuer with interest.
How can you help your kids build credit?
To help your kids build a good credit history, teach them the importance of saving, budgeting, and tracking their spend before they are in a position to borrow. This is important because banks and financial institutions look for someone who is good at paying money back on time, and doesn't go over their credit limit.
To ensure your child understands this, get them used to financial independence early with a prepaid debit card like GoHenry. This will help them learn how to manage their money effectively before borrowing from someone else.
How can I teach my child about credit?
Teaching your kids about credit is easy if you use real-world examples to back up your explanations. For instance:
Credit is not free money
Not only does credit (the money they borrow) have to be paid back, but often you have to pay back more than you borrow (this is known as interest). Show your child this next time they run out of pocket money and borrow from you. Add interest to the money they borrow.
Related: Credit tips for teens
These include the annual fee for having the card, late payment fees if you forget to pay on time, and extra fees when you use an ATM to withdraw cash. For example, explain to your child if the ATM fee is 3% and you make a cash withdrawal of £500, you will be charged an extra £15.
Talk about credit limits
All credit cards come with a limit you can spend up to for example, £1000. However, it’s easy to go over this amount and get charged for doing so. Explain how prepaid cards like GoHenry, don’t allow you to spend more than you have, which teaches kids how to spend within limits.
Related: Credit card facts for kids & teens
How can GoHenry help?
The best way to help your child build good habits is by paying pocket money onto a GoHenry card. The app then lets you set limits for how much your child can spend in a single transaction, over a week and at an ATM (up to a maximum withdrawal limit of £120 per day). This is useful when your child is taking their first steps towards financial independence, and you want to teach them how to spend wisely.
The app will also allow them to track their spending and give them access to Money Missions. These are bite-sized games and interactive quizzes designed to build financial literacy, confidence and curiosity around all the financial skills your child will need as they get older.