Can Gift Cards Be Bought With a Credit Card?

Purchasing gift cards with a credit card is a common query, often driven by convenience and the potential to earn rewards like points or cashback. However, understanding various policies and financial implications is crucial for consumers.

Purchasing Gift Cards with Credit Cards

You can generally purchase gift cards with a credit card at many retailers, both in physical stores and online. Gift cards fall into two main types: closed-loop and open-loop.

Closed-loop gift cards are specific to a single retailer or a limited group of affiliated merchants, functioning only at the issuing store or chain. Examples include gift cards for a specific coffee shop or clothing store. These cards are typically free to activate, and you only pay the amount loaded onto the card.

Open-loop gift cards, on the other hand, are branded by major credit card networks like Visa, Mastercard, or American Express, and can be used anywhere that brand of card is accepted. These cards operate much like traditional credit or debit cards, allowing for broader flexibility in where they can be spent. While closed-loop cards are usually accepted with a credit card as a standard purchase, open-loop gift cards may be treated differently by retailers and card issuers.

Retailer and Card Issuer Policies

The ability to purchase gift cards with a credit card can be influenced by policies set by both the retailer and the credit card issuer. Retailers may impose restrictions on gift card purchases, particularly for large amounts or for open-loop cards. Some stores might limit the number of gift cards a customer can buy with a credit card or may even require alternative payment methods for certain types of gift cards to deter fraud or money laundering.

Credit card issuers also have policies that can affect these transactions. A significant consideration is how an issuer categorizes a gift card purchase. While most purchases of retailer-specific gift cards are treated as standard purchases, some issuers may classify the purchase of certain gift cards, especially open-loop or prepaid cards, as a “cash advance.” A cash advance is essentially a short-term loan against your credit card limit and comes with specific financial consequences.

Cash advances typically incur immediate interest charges, often at a higher Annual Percentage Rate (APR) than regular purchases, and do not usually have a grace period before interest begins to accrue. Additionally, a cash advance fee, commonly ranging from 3% to 5% of the transaction amount or a minimum of $10, whichever is greater, is usually applied. Some credit card agreements may also exclude gift card purchases from earning rewards points, cashback, or other benefits, even if the transaction is not classified as a cash advance. This means that while you might use your credit card, you may not receive the expected rewards for that spending.

Financial Considerations

Purchasing gift cards with a credit card involves several financial aspects beyond just the face value of the card. Open-loop gift cards, unlike most closed-loop cards, often come with activation fees. These fees can range from approximately $2.95 to $6.95, depending on the card’s value and the issuer. These activation fees are added to the cost of the gift card itself.

If a credit card issuer classifies a gift card purchase as a cash advance, this incurs additional fees and higher interest rates, significantly increasing the total cost. Interest accrues immediately, without a grace period, making it crucial to pay off the balance quickly to avoid higher expenses.

A large gift card purchase can also impact a cardholder’s credit utilization ratio, which is a factor in credit scores. This ratio compares the amount of credit used to the total available credit. A high utilization ratio, generally considered above 30% of available credit, can negatively affect your credit score, even if you pay the balance in full before the due date, as credit bureaus are often updated at the end of the statement period. Therefore, budgeting and carefully tracking these purchases are important to avoid accumulating debt and to maintain a healthy credit profile.