NEW YORK–A new digital tool is set to debut that will help credit cards to act like debit cards.
Called Debitize, the online tool will be available as a mobile app later this summer, with the idea being that users can build credit and get the perks that come with many credit cards, while protecting themselves from getting mired in debt, according to The New York Times.
Debitize works this way: First, customers need both a checking account and a credit card before they can register online for Debitize and link both the bank account and the card to the tool. According to Debitize, it then tracks credit card spending and pulls cash from the customer’s checking account when a purchase is made on 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 Times reported.
The basic service is free, but according to the Times, Debitize may earn referral fees in the future, such as when users openly recommended credit cards. The company also may earn interest from funds accumulated in the reserve accounts, Liran Amrany, the chief executive and co-founder of Debitize, told The New York Times.
Using 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, the Times noted.
Debitize especially appeals to people younger than 35, who may be burdened by student loans and who are wary of taking on more debt, according to the Times. And some people, regardless of age, may simply be averse to the risk of running up unmanageable debt, the report added.
The service also appeals to those who want the points, rewards and cash-back that come with certain credit cards when the balance is paid in full each month.