Can You Buy a Gift Card With a Credit Card?

While purchasing gift cards with a credit card is often possible, the process is not always straightforward and involves various considerations that can impact one’s financial standing. Understanding these nuances is important for making informed decisions about using credit for gift card acquisitions.

Purchasing Gift Cards with Credit Cards

Many retailers, both physical and online, generally permit the use of credit cards for purchasing their store-specific gift cards. For instance, you can typically buy gift cards from major retailers like Walmart, Target, or Amazon using a credit card, whether you are shopping in person or through their websites.

However, restrictions may apply, particularly when purchasing open-loop gift cards, such as Visa, Mastercard, or American Express gift cards, at certain locations like grocery or convenience stores. Some retailers might impose limits on the transaction amount for gift card purchases, or their systems might treat these purchases differently due to the cash-like nature of open-loop cards. Consumers often consider using credit cards for gift card purchases to earn credit card rewards points or to help meet minimum spending requirements for a new credit card’s sign-up bonus. Policies can vary significantly between different retailers and even depend on the specific type of gift card being purchased.

Potential Financial Costs and Risks

Using a credit card to buy gift cards can lead to unexpected financial costs and risks. One significant concern is that some credit card issuers or retailers may classify gift card purchases, especially those for open-loop cards, as a cash advance. A cash advance is treated differently from a standard purchase; interest typically begins accruing immediately at a higher annual percentage rate (APR), and a cash advance fee, often 2% to 5% of the transaction amount, is applied.

Furthermore, certain gift card purchases might be excluded from earning credit card rewards, or if classified as a cash advance, no rewards will be earned at all. Some credit card agreements explicitly state that purchases of gift cards or cash equivalents are ineligible for rewards. Additionally, open-loop gift cards frequently carry activation or purchase fees, which can range from approximately $2.95 to $6.95, depending on the card’s value. These fees increase the overall cost of the gift card, potentially negating any perceived benefits from rewards. There is also a heightened risk if a gift card is lost or stolen, as they generally offer fewer protections compared to direct credit card purchases from a merchant.

Different Types of Gift Cards

Closed-loop gift cards are specific to a single retailer or a group of affiliated merchants, such as a Starbucks or Amazon gift card. These cards can only be redeemed at the issuing store or chain. They are generally less likely to be classified as cash advances by credit card issuers and are more commonly accepted for credit card purchases without issue.

In contrast, open-loop gift cards are branded by major payment networks like Visa, Mastercard, or American Express. These cards function similarly to debit cards and can be used almost anywhere the brand is accepted, offering broad flexibility to the recipient. However, open-loop gift cards are more prone to being categorized as cash advances by credit card companies, which can trigger higher fees and immediate interest charges. They also typically come with purchase or activation fees, which closed-loop cards generally do not have.

Impact on Your Credit and Financial Standing

Using credit cards for gift card purchases can have broader implications for your credit score and overall financial health. When you use a credit card, the balance contributes to your credit utilization ratio, which is the amount of credit you are using compared to your total available credit. A high credit utilization ratio, generally considered above 30%, can negatively impact your credit score, even if you pay off the balance promptly. This is a significant factor in credit scoring models.

The practice also carries the risk of accumulating high-interest debt if the credit card balances are not paid in full each month. This risk is amplified if the purchases are treated as cash advances, as they accrue interest immediately at a higher APR. Relying on credit for gift card purchases might also circumvent a personal budget, potentially leading to overspending beyond one’s financial means. Additionally, tying up a portion of your credit limit with gift card purchases could reduce the available credit that might be needed for genuine emergencies or unexpected expenses.