Can You Buy a Gift Card With a Credit Card?

Purchasing gift cards with a credit card involves various factors that influence whether a transaction is permitted or incurs additional costs. Consumers should understand the varying policies of retailers and credit card issuers, and the different types of gift cards available.

General Permissibility and Restrictions

Buying gift cards with a credit card is generally possible at many retail locations, such as grocery and department stores. These store-specific gift cards are often treated like any other merchandise.

Retailers may limit these transactions due to fraud concerns. Anti-money laundering regulations can also restrict large-value gift card purchases, requiring customer information. Merchants might also discourage purchases involving high processing fees, especially for low-margin gift cards.

Credit card companies may have policies affecting gift card purchases. While many transactions are processed as standard purchases, some issuers might classify certain gift card purchases as “cash equivalent” transactions. This classification can lead to different terms, potentially triggering fees or penalties, varying by issuer.

Understanding Card Types and Associated Fees

The type of gift card purchased influences how credit card issuers treat the transaction. Closed-loop gift cards, such as those for a specific retailer like Amazon or Starbucks, are viewed as regular merchandise. When purchased with a credit card, these usually process like any other retail transaction and are less likely to incur special fees.

In contrast, open-loop gift cards, branded by payment networks (e.g., Visa, Mastercard, American Express), function like prepaid debit cards. Due to their broad usability, these are often considered “cash equivalents” by credit card issuers. Purchasing these types of gift cards with a credit card can sometimes trigger a cash advance, a short-term loan against your credit limit, not a standard purchase.

Cash advances come with immediate costs. Interest accrues from the transaction date without a grace period, and the Annual Percentage Rate (APR) for cash advances is usually higher than for regular purchases, often 20% to 30% or more. A flat cash advance fee is also applied, commonly 3% to 5% of the transaction or a minimum of $10. Additionally, open-loop gift cards often carry their own activation or purchase fees, ranging from $2.95 to $6.95, added at purchase.

Impact on Credit Card Rewards and Credit Score

Purchasing gift cards with a credit card can affect both earned rewards and credit scores. While many purchases, including some gift card purchases, can earn rewards like cash back or points, transactions classified as cash advances or “cash equivalent” purchases typically do not accrue rewards. Large gift card purchases might also trigger fraud alerts, potentially halting reward earning.

The size of a gift card purchase also impacts a credit score through credit utilization. Credit utilization is the ratio of outstanding credit card balances to total available credit, a significant factor in credit scoring models. A large purchase, especially if not paid off quickly, increases this ratio, which can negatively affect a credit score. Financial experts advise keeping credit utilization below 30% of available credit to maintain good credit standing.

If a gift card purchase leads to a cash advance and these amounts are not paid off promptly, it can result in accruing interest and late payments. Consistent on-time payments are a primary determinant of a healthy credit score, and any deviation due to unexpected charges can have a negative impact. Paying off the balance before the credit card statement date can help ensure a high utilization rate is not reported to credit bureaus, mitigating potential negative effects.