Can You Purchase a Gift Card With a Credit Card?

Purchasing gift cards with a credit card involves various considerations. The ability to complete such a transaction is not always straightforward, as it depends on policies set by both the merchant selling the gift card and the credit card issuer. Understanding these factors is important for anyone considering using a credit card for gift card acquisitions. This article examines merchant practices, credit card implications, and practical strategies.

Understanding Merchant Policies

The discretion of individual merchants influences whether a credit card can be used to purchase a gift card. Businesses implement varying policies due to concerns like fraud prevention, processing fees associated with credit card transactions, and a desire to discourage activities that might exploit loyalty programs.

It is permissible to purchase gift cards with a credit card at most grocery stores and department stores, especially for store-specific gift cards. These are “closed-loop” gift cards, meaning they can only be redeemed at the issuing merchant or within a limited network. Conversely, restrictions are more common when attempting to buy open-loop gift cards, such as those branded by Visa, Mastercard, or American Express. Open-loop gift cards act more like a debit card and can be used wherever the associated payment network is accepted.

Merchants have different rules for these two types of gift cards because open-loop cards are cash equivalents. Businesses may limit or prohibit credit card purchases of these cards to mitigate risks like chargebacks or fraud. Some retailers also impose limits on the total value of gift cards that can be purchased with a credit card in a single transaction.

Credit Card Considerations

Beyond merchant policies, how a credit card issuer processes a gift card purchase carries financial implications for the consumer. A primary concern is the risk of a transaction being categorized as a cash advance rather than a standard purchase. Cash advances incur immediate interest charges, often at a higher Annual Percentage Rate (APR) than regular purchases, and come with a cash advance fee. Credit card issuers may classify purchases of open-loop gift cards as cash advances.

The ability to earn credit card reward points, cash back, or other benefits on gift card purchases is another consideration. Many credit card issuers exclude gift card purchases from earning rewards, or they may categorize them as “cash-like transactions” that do not qualify. Reviewing your specific card agreement is important, as terms and conditions vary by issuer and card. Attempting to generate large amounts of rewards through gift card purchases can also lead to credit card companies flagging accounts for unusual activity or even suspending rewards privileges.

Credit card companies monitor spending patterns as a fraud prevention measure. Large gift card purchases, especially those that deviate from typical spending habits, may trigger fraud alerts or temporary holds on an account. These measures are designed to protect both the cardholder and the issuer from fraudulent activity, but they can temporarily restrict card usage.

Strategies for Purchasing Gift Cards

To navigate complexities when purchasing gift cards with a credit card, consider these strategies:

Inquire about a merchant’s specific policy before attempting the purchase. This clarifies whether credit cards are accepted for gift cards and if there are any limits on purchase amounts.
Review your credit card agreement, especially sections pertaining to cash advance definitions and associated fees. Understanding these terms helps identify transactions that could incur unexpected costs. Some credit card issuers may allow cardholders to disable cash advances altogether, which can prevent accidental cash advance charges on gift card purchases.
Initiate smaller gift card purchases as a test to observe how transactions are processed by both the merchant and the credit card issuer. This approach allows consumers to gauge whether the purchase is treated as a standard transaction or a cash advance without committing to a large sum.
Monitor credit card statements for unexpected fees or transaction categorizations, such as a cash advance, following any gift card purchase.
Distinguish between store-specific and open-loop gift cards. Store-specific cards are less likely to trigger cash advance flags than open-loop cards.