Can You Use Credit Cards to Buy Gift Cards?

Using credit cards to buy gift cards is common, but involves considerations for both the cardholder and the credit card account. Understanding retailer policies, credit card issuer rules, transaction classification, and the impact on credit accounts is important.

Retailer and Credit Card Issuer Rules

Retailers often have policies on credit card use for gift card purchases, influenced by fraud prevention and operational costs. Some merchants limit the number or value of gift cards bought with a credit card, especially for high denominations, to mitigate fraud or money laundering risks. This prevents using stolen credit card information to acquire easily convertible assets.

Credit card issuers also monitor gift card purchases. Large or frequent transactions might be flagged as suspicious, potentially leading to declines or account reviews. These rules are partly driven by high interchange fees, which reduce merchant profitability when selling gift cards at face value, especially if the primary transaction generates little additional revenue.

Credit Card Transaction Classification

The classification of a gift card purchase by a credit card company determines associated costs and benefits. This depends on the type of gift card. Store-specific gift cards, or closed-loop cards, are typically accepted only at the issuing retailer or affiliated merchants. Purchases of these cards are almost always processed as regular retail transactions.

Open-loop gift cards, such as Visa, Mastercard, or American Express, function like debit or credit cards and can be used wherever their networks are accepted. While often treated as regular purchases, especially from general retailers, these cards, particularly when bought directly from financial institutions or in large quantities, may be classified as a cash advance.

A cash advance is a short-term loan against your credit card’s available credit limit. Unlike standard purchases, cash advances typically have no grace period, meaning interest accrues immediately. They also incur an upfront fee, often 3% to 5% of the transaction amount, or a flat fee of $10, whichever is greater. The credit card issuer determines the classification, not solely the merchant.

Effects on Credit Card Accounts

Using a credit card to buy gift cards can have several financial implications. One area affected is rewards accrual; while some gift card purchases might earn rewards, many issuers exclude these transactions or offer reduced rates. Certain issuers explicitly state that gift cards or “cash-like transactions” are ineligible for points or cash back. Cash advances never earn rewards.

The financial consequences are pronounced if a gift card purchase is classified as a cash advance, as the cost can quickly increase due to fees and immediate interest. Both regular purchases and cash advances reduce available credit, impacting the credit utilization ratio.

This ratio, comparing credit used to total available credit, is a significant factor in credit scoring models, accounting for up to 30% of a FICO score. A high credit utilization ratio, generally above 30%, can negatively affect credit scores, indicating higher financial risk. While a cash advance isn’t explicitly flagged on a credit report, the increased balance contributes to higher utilization, potentially lowering a credit score if not paid off promptly.