Can You Use a Gift Card as a Credit Card?

Gift cards and credit cards serve as common financial instruments for transactions, yet they operate on fundamentally different principles. Gift cards typically represent a prepaid amount of money, offering a convenient way to give or receive funds for specific or general purchases. Credit cards, conversely, provide a revolving line of credit extended by a financial institution, allowing users to borrow money up to a predetermined limit. This article clarifies the distinct nature of these payment methods and explores how certain gift cards can mimic credit card functionality.

Key Distinctions Between Gift Cards and Credit Cards

Gift cards are characterized as prepaid instruments, meaning they hold a fixed monetary value. They do not involve a line of credit, and thus, using a gift card does not impact an individual’s credit history or score. Gift cards do not accrue interest, nor can they lead to debt for the cardholder. They are essentially a digital form of cash, limited to the amount loaded onto the card at the time of purchase.

Credit cards, on the other hand, function as a line of credit, enabling cardholders to borrow money from the issuing financial institution up to an approved limit. This borrowing mechanism means that credit card balances can accrue interest if not paid in full by the due date, and prolonged balances can lead to debt. Credit card activity, including payment history and utilization, directly influences an individual’s credit score.

Understanding Open-Loop Gift Card Functionality

Certain types of gift cards, known as open-loop gift cards, are designed to operate on major payment networks. These cards typically bear the logos of prominent networks such as Visa, Mastercard, American Express, or Discover. Unlike closed-loop gift cards, which are limited to specific retailers, open-loop cards are accepted wherever the associated payment network is honored.

The functionality of these cards closely resembles that of debit or credit cards because they process transactions through the same established networks. When making an in-store purchase, an open-loop gift card can often be swiped or inserted like a standard credit card. Users are frequently prompted to select “credit” at the point-of-sale terminal, which bypasses the need for a Personal Identification Number (PIN) and routes the transaction through the credit card network for authorization.

For online purchases, open-loop gift cards require the input of the card number, expiration date, and the three or four-digit Card Verification Value (CVV) code, just like a credit card. These gift cards can be used for a wide array of online shopping, mirroring the convenience of credit card transactions. Some online merchants may require a billing address to be registered with the gift card for online purchases, which can typically be done through the card issuer’s website.

Practical Application and Common Considerations

Ensure the purchase amount does not exceed the gift card’s available balance, as transactions might be declined if funds are insufficient. Gift cards can present challenges with pre-authorization holds, which are common at establishments like gas stations, hotels, or car rental agencies. These merchants may temporarily hold an amount greater than the actual purchase to cover incidentals, potentially locking up the card’s entire balance for several days. For instance, swiping a gift card at a gas pump can result in a pre-authorization hold of $75 to $200, making it advisable to pay inside and specify the exact amount of fuel needed.

Gift cards are generally not suitable for recurring payments, such as subscriptions or monthly memberships. This is because gift cards have a finite balance and lack the continuous line of credit that subscription services require for ongoing billing. If a transaction exceeds the gift card’s balance, many merchants allow for splitting payments, where the gift card covers a portion of the cost and another payment method, like a debit or credit card, covers the remainder. Before use, checking the gift card’s balance is prudent, which can typically be done online via the issuer’s website or by calling a toll-free number provided on the card.