Can You Buy Gift Cards With a Credit Card?

Using a credit card to purchase gift cards involves various considerations, including retailer policies, how credit card companies classify transactions, and the financial implications for the cardholder. Navigating these nuances can help consumers make informed decisions and potentially avoid unexpected costs.

Retailer Policies on Gift Card Purchases

Retailers maintain diverse policies regarding the use of credit cards for gift card transactions. Many stores permit purchasing their store-specific gift cards with a credit card, treating it as a regular sale. However, some retailers might impose restrictions.

Conversely, open-loop gift cards, such as those branded by Visa or Mastercard, may face stricter rules. Some retailers prohibit credit card use for these types of gift cards due to concerns about fraud, money laundering, or to prevent customers from obtaining a cash equivalent without incurring cash advance fees. Retailers also incur processing fees for credit card transactions, and may wish to avoid these costs on cash-like transactions. It is always advisable to confirm a specific retailer’s stance before attempting such a purchase.

Credit Card Issuer Transaction Classification

Even if a retailer permits purchasing a gift card with a credit card, the credit card issuer’s classification of the transaction is a separate consideration. Credit card companies primarily categorize transactions as either a standard purchase or a cash advance. A standard purchase involves buying goods or services, while a cash advance is akin to withdrawing cash against your credit limit. This distinction significantly impacts how the transaction is treated.

Issuers often rely on Merchant Category Codes (MCCs), four-digit numbers assigned by payment networks like Visa and Mastercard, to classify businesses and their transactions. While buying a gift card from a general retailer is typically coded as a standard purchase, certain scenarios can trigger a cash advance classification. For instance, purchasing open-loop or prepaid gift cards, especially in large quantities or directly from a financial institution, may be flagged as a cash advance. Review these terms or contact the issuer if unsure.

Financial Outcomes for the Cardholder

The classification of a gift card purchase as either a standard transaction or a cash advance directly influences the cardholder’s financial outcomes. If treated as a regular purchase, it can offer benefits such as earning credit card rewards like points, miles, or cashback, and gift card purchases can contribute to this if categorized appropriately. However, some card issuers may exclude gift card purchases from reward eligibility in their terms, even if processed as a purchase.

Conversely, if the transaction is classified as a cash advance, the financial implications are notably different and generally less favorable. Cash advances typically incur immediate fees, often ranging from 3% to 5% of the transaction amount, with a minimum fee commonly set at $5 or $10. Interest also begins accruing immediately on cash advances, without any grace period, and at a higher Annual Percentage Rate (APR) than standard purchases. Furthermore, cash advance transactions usually do not earn rewards points, negating any potential benefit from the purchase. Large gift card purchases, regardless of classification, can also impact a cardholder’s credit utilization ratio, potentially affecting credit scores if not promptly paid off.