Is the Step Card a Credit or Debit Card?

The Step card is a financial tool known for its unique approach to money management, especially for younger individuals. This article clarifies whether it functions as a credit or debit card, explaining its operational aspects and how it differs from traditional cards.

Understanding Step

Step is a financial technology company, not a traditional bank. It partners with established financial institutions, like Evolve Bank & Trust, to provide FDIC-insured banking services. Step’s mission is to promote financial literacy and responsible spending habits among teens and young adults.

The platform offers a spending account linked to a physical Visa card. It provides financial tools for a technology-savvy generation, offering an all-in-one solution for managing finances and promoting financial education.

How Step’s Card Functions

The Step card operates by linking directly to a user’s spending account; transactions draw from available funds. Users can only spend deposited money, which inherently prevents overdrafts and debt accumulation. This design eliminates interest charges and traditional credit limits, as no borrowed money is involved.

Its “Smart Pay” system automatically uses funds in the deposit account to pay off purchases monthly. The card supports various funding methods, including direct deposit, linking other bank accounts or debit cards, and transfers from services like Venmo or PayPal. Parents can also link accounts to oversee child spending, transfer funds, and monitor transactions.

Distinguishing Step from Traditional Cards

The Step card presents a unique blend of features that differentiate it from both traditional debit and credit cards. It functions similarly to a debit card because it requires users to have funds in their account before making purchases, thereby preventing debt. This “spend what you have” model means there are no overdraft fees, a common charge with many traditional debit accounts.

However, the Step card also incorporates elements typically associated with credit cards, particularly its ability to help users build a credit history. Through its Smart Pay feature, Step reports positive payment behavior to major credit bureaus, including Experian, Equifax, and TransUnion. This reporting can begin for users even before they turn 18, with up to two years of payment history potentially reported once they reach adulthood and opt-in. This contrasts with traditional debit cards, which do not contribute to a credit score.

Unlike a traditional credit card, the Step card does not involve borrowing money, has no interest rates, and does not impose a credit limit based on a credit score. It is often referred to as a “secured spending card” because spending is backed by the funds held in the user’s account, mitigating the risks associated with accumulating debt. This structure makes the Step card a tool for financial education and gradual credit building without the typical risks of traditional credit products.