Can You Use a Credit Card to Buy a Gift Card?

Using a credit card to purchase a gift card is a common consideration for many consumers, often for rewards or convenience. The ability to do so is not universally guaranteed. Whether a credit card can be used depends on retailer policies, credit card issuer terms, and how the transaction is categorized. Understanding these factors helps consumers avoid unexpected fees and receive anticipated benefits.

Retailer and Issuer Policies for Gift Card Purchases

The ability to purchase gift cards with a credit card is governed by retailer policies, which vary. Many large stores and online retailers generally permit credit card payments for gift cards, treating them as merchandise. However, some retailers may limit the number of gift cards purchased or disallow credit cards for certain types. Policies may differ for store-specific versus open-loop gift cards.

Credit card issuers also determine if a gift card purchase is permitted and processed. Issuers may classify gift card purchases differently than typical spending. Some credit card companies state in their terms that gift card purchases, especially cash equivalents, may not earn rewards or be processed differently. This is tied to Merchant Category Codes (MCCs). Most gift card purchases at general retailers are processed as standard purchases, but some vendors or gift card types might trigger different categorizations.

Credit Card Transaction Categorization

Once a gift card purchase is initiated, the credit card company categorizes the transaction, determining associated costs and benefits. Generally, when a consumer buys a gift card from a retail store, the transaction is processed as a regular purchase. This means it falls under the standard Annual Percentage Rate (APR) for purchases and incurs no additional fees. The credit card network and issuing bank classify this as buying a product, similar to any other item in the store.

However, a gift card purchase can be classified as a cash advance, with different financial implications. This occurs if the gift card is purchased from a financial institution, or if it is a prepaid card. Some issuers may flag large gift card purchases or transactions at specific vendors as cash equivalents, triggering cash advance terms. When categorized as a cash advance, interest begins to accrue immediately from the transaction date, with no grace period.

Cash advances come with higher fees and interest rates compared to standard purchases. A cash advance fee is commonly applied, ranging from 3% to 5% of the transaction, or a flat fee, often with a minimum of $5 or $10. The APR for cash advances can be higher than the purchase APR. For example, a purchase APR of 19.99% might correspond to a cash advance APR of 22.99% or higher. Many credit card rewards programs exclude gift card purchases from earning points, miles, or cashback, especially if the issuer views them as cash-like.

Considerations for Credit Card Gift Card Purchases

Before attempting to purchase a gift card with a credit card, consumers should carefully review their credit card terms and conditions. This includes understanding the specific cash advance fees and interest rates applicable to their card, as these charges can quickly negate any potential rewards earned. Cash advance fees commonly range from 3% to 5% of the transaction amount, and interest often begins accruing immediately at a higher APR than for standard purchases. Familiarity with these terms helps prevent unexpected costs.

Consumers should also investigate their credit card’s rewards program to determine if gift card purchases are eligible for earning points or cashback. Many issuers exclude gift card transactions from rewards accumulation, especially for open-loop cards or if the purchase is deemed a cash equivalent. Checking the fine print for “eligible purchases” can clarify whether such transactions will contribute to rewards. Some programs may also have limits on bonus categories, meaning that even if gift cards are eligible, they might not earn accelerated rewards.

The impact on credit utilization is another important consideration, particularly for larger gift card purchases. Credit utilization, the amount of credit used relative to total available credit, significantly influences credit scores. Experts advise keeping credit utilization below 30% to maintain a healthy credit profile. A substantial gift card purchase could temporarily elevate the utilization ratio, potentially causing a short-term dip in credit scores.

Practical steps can help mitigate risks. Before purchasing, ask the store clerk about their policy regarding credit card payments for gift cards and how transactions are categorized. If uncertain, contact your credit card issuer directly to inquire about their policies on gift card purchases and whether they would be treated as cash advances or earn rewards. Some issuers allow cardholders to disable the cash advance feature to prevent unintended charges.