Young adults these days are wary of credit cards. Yet building credit is important to qualify for loans for major purchases like a car or home. A fledgling digital tool aims to solve that problem, by helping credit cards mimic debit cards.

Debitize, an online tool that will be available as a mobile app later this summer, works to convert a credit card into a sort of debit card with benefits. The idea is that users can build credit and get the perks that come with many credit cards, while protecting themselves from getting mired in debt. (Debx, another start-up, takes a similar approach, using a mobile app.)

Here’s how Debitize works: First, customers need both a checking account and a credit card. Then, they register online for Debitize and link both the bank account and the card to the tool. (As with many digital financial tools, users must share personal and account information with the service; Debitize said it uses bank-level security and doesn’t store account login credentials on its servers).

Debitize then tracks credit card spending and pulls cash from your checking account when you make purchases using the credit card. The money is held in a separate Debitize account (an FDIC-insured account at a bank that works with Debitize), and the tool pays the credit card bill automatically when it’s due.

The basic service is free; Debitize may earn referral fees in the future, such as when users open recommended credit cards. The company also may earn interest from funds accumulated in the reserve accounts, said Liran Amrany, the chief executive and co-founder of Debitize.

Card balances are paid monthly, or, for a $3 monthly fee, they can be paid weekly, which helps to keep card “utilization” — an important factor in calculating credit scores — low. (A representative of the FICO credit score model didn’t respond to a request for comment).

Why would someone want to do that, rather than simply use a debit card in the first place? Debit cards, which offer pay-as-you-go spending, are especially appealing to millennials who may be burdened by student loans and wary of taking on more debt. And some people, regardless of age, may simply be averse to the risk of running up unmanageable debt.

But there are good reasons to use a credit card instead of a debit card, especially when the balance is paid in full each month, Amrany said. Spending on credit cards is reported to the major credit bureaus, helping consumers to build a credit file and a credit score that can enable them to borrow larger amounts in the future.

Plus, credit cards often offer reward points or cash back for spending. Credit cards offer strong protections in case of fraud or a dispute with a merchant, and many offer automatic extended warranties for items purchased with the card. And renting a car is difficult without one.

“To me, there’s no reason to use a debit card,” said Amrany. So when two of his friends told him that they were abandoning their credit cards in favor of debit cards, the need for a tool like Debitize was clear, he said. “Why not pay for credit card purchases, every day?”

Christopher Abbott, 33, who works in sales in Los Angeles, said he started out with one credit card linked to Debitize late last year and recently added a second. “I make all my purchases now using my credit card, so I can get my travel points,” he said.


Ann Carrns writes for the New York Times.