Can I Use a Credit Card to Buy Gift Cards?

Using a credit card to purchase gift cards is a transaction many consumers consider. The ability to use a credit card for such a purchase, and its financial implications, are often more complex than a typical retail transaction.

Retailer Policies and Point-of-Sale Acceptance

While credit cards are widely accepted for most retail purchases, retailers often implement policies regarding gift card acquisitions. These policies vary significantly between stores and different types of gift cards. Many retailers restrict these transactions to prevent fraud, a common concern with gift card sales.

Retailers may also impose restrictions to maintain profitability margins on gift card sales. These policies are common in grocery stores, pharmacies, and large big-box retailers. These establishments frequently sell a wide array of gift cards, ranging from store-specific options to general-purpose cards issued by major payment networks.

A distinction exists between store-specific gift cards and general-purpose gift cards, such as those branded with Visa, Mastercard, or American Express. Store-specific gift cards can only be redeemed at the issuing retailer, making them less prone to misuse. General-purpose gift cards, however, function more like debit cards and can be used at various merchants, making them more attractive for illicit activities like money laundering or manufactured spending.

Acceptance policies also depend on the type of gift card. Retailers might accept credit cards for their own branded gift cards but decline them for general-purpose gift cards. The decision to accept or decline a credit card for a gift card purchase rests with the merchant, and policies can vary by store location within the same chain.

Credit Card Issuer Transaction Classification

Beyond retailer acceptance, a credit card issuer’s classification of a gift card purchase impacts how the transaction is treated on a cardholder’s account. This classification is distinct from the retailer’s point-of-sale decision. Issuers categorize these transactions based on their internal policies and the gift card’s nature.

For some gift card purchases, particularly store-specific gift cards, the transaction may be classified as a regular retail purchase. This means interest accrues based on the card’s standard purchase APR if the balance is not paid in full by the due date. However, general-purpose gift cards, which function much like cash equivalents, are often classified differently by issuers.

Many credit card issuers categorize general-purpose gift card purchases (such as Visa, Mastercard, or American Express) as a cash advance. This classification is due to their cash-like nature, allowing them to be used broadly or converted to cash. When a transaction is classified as a cash advance, it triggers immediate financial consequences that differ from a standard purchase.

A cash advance incurs a higher Annual Percentage Rate (APR) than the standard purchase APR, often 25% to 30% or more. Interest on cash advances begins to accrue from the transaction date, with no grace period. Additionally, cash advances are subject to a separate cash advance fee, typically 3% to 5% of the amount, or a minimum of $5 to $10.

Financial Outcomes and Credit Card Rewards

A credit card issuer’s classification of a gift card purchase influences financial outcomes, particularly rewards and costs. If classified as a cash advance, cardholders do not earn rewards (points, miles, or cashback). Cash advance transactions are excluded from rewards programs because they are considered a means of accessing cash rather than a traditional retail purchase.

Even if a gift card purchase is categorized as a regular retail transaction, earning rewards is not always guaranteed. Some credit card rewards programs specifically exclude gift card purchases from earning rewards. This exclusion often stems from efforts to prevent manufactured spending, where individuals attempt to generate large amounts of rewards by buying and reselling gift cards without genuine purchasing intent.

Beyond the potential loss of rewards, several costs can accumulate when using a credit card for gift card purchases. Cash advance fees, which typically range from 3% to 5% of the transaction amount or a minimum of $5 to $10, are immediately applied if the transaction is classified as a cash advance. The higher cash advance APR, often 25% to 30% or more, combined with immediate interest accrual from the transaction date, can significantly increase the overall cost. Furthermore, general-purpose gift cards themselves often carry activation fees, which can range from approximately $3 to $7 per card.

Large gift card purchases, especially if they are cash advances or represent a significant portion of a credit limit, can impact a cardholder’s credit utilization ratio. This ratio, which compares the amount of credit used to the total available credit, is a factor in credit scoring. A high utilization ratio, generally considered above 30%, can negatively affect credit scores.

Frequent or large gift card purchases made with a credit card may also trigger account monitoring or fraud alerts from the credit card issuer. Due to their association with manufactured spending schemes, money laundering, or other fraudulent activities, such transactions can be flagged as suspicious. Issuers may temporarily freeze an account or initiate an account review to investigate the activity, which can disrupt a cardholder’s access to their credit.