How to Pay Someone With a Credit Card

Using a credit card to pay another individual or a small business that does not traditionally accept card payments can seem complex. While direct person-to-person credit card transfers are uncommon, various digital services and platforms have emerged to facilitate such transactions.

Understanding Payment Methods

Digital services and platforms act as intermediaries, allowing credit card holders to send funds to recipients who might otherwise only accept cash, checks, or direct bank transfers.

Peer-to-peer (P2P) payment applications

Peer-to-peer (P2P) payment applications allow users to send money directly to friends, family, or small businesses by linking a bank account or a credit card. Services like PayPal, Venmo, and Cash App enable users to connect their credit card to their account. When using a credit card as the funding source, these platforms typically charge the sender a processing fee, often around 3% of the transaction amount. The recipient usually receives the funds directly into their app balance, which can then be transferred to a linked bank account.

Third-party bill payment services

Third-party bill payment services provide a pathway to pay individuals or businesses that do not directly accept credit card payments, such as landlords, contractors, or smaller vendors. Companies like Plastiq or Melio allow users to pay bills or send funds using their credit card. These services act as a bridge, accepting the credit card payment from the user and then remitting the funds to the recipient via a check or an electronic bank transfer (ACH), sometimes taking several business days for the funds to arrive. A fee, typically ranging from 2.5% to 3.5% of the transaction, is usually charged to the payer.

Direct merchant payments

Direct merchant payments occur when a business is already equipped to accept credit cards for its goods or services. This method involves the direct input of credit card details into a point-of-sale system or an online payment portal. When a business is set up to process credit cards, the transaction is handled directly between the cardholder, the merchant, and the payment processor, without needing additional third-party services. Such direct transactions are generally free for the consumer, with the merchant absorbing the processing fees.

Cash advance

A cash advance from a credit card is generally not a recommended method for paying someone due to its high costs. This involves withdrawing cash directly from a credit card, similar to a loan. Cash advances typically incur a significant transaction fee, often 3% to 5% of the amount withdrawn, and interest begins accruing immediately from the date of the advance, unlike purchases which often have a grace period. The annual percentage rate (APR) for cash advances is also frequently higher than that for standard purchases, making it a costly option for obtaining funds.

Preparing for Your Payment

Before initiating a credit card payment through a third-party service, gather necessary information and understand potential costs. Thorough preparation helps ensure a smooth transaction and can prevent unexpected fees or delays.

Recipient information

Obtaining all necessary recipient information is important for accurate payment delivery. This typically includes the recipient’s full legal name, email address, and phone number. If the payment is for a specific bill or service, you may also need account numbers or invoice details to ensure proper credit. Confirming these details directly with the recipient before initiating payment can prevent misdirected funds.

Credit card details

Having your credit card details readily accessible is important. This includes the full 16-digit credit card number, expiration date, and the three or four-digit security code (CVV/CVC) found on the back or front of your card. Some online payment platforms may also require the billing address associated with the credit card. Ensuring these details are accurate and current will facilitate quick entry during the payment process.

Fees and charges

Understanding the fees and charges associated with using a credit card through a third-party service is important. Most P2P apps and third-party bill payment services charge a percentage-based fee when a credit card is used as the funding source. This fee is typically borne by the sender. Always review the specific fee structure displayed by your chosen service immediately before confirming the payment to avoid surprises.

Credit limit and available credit

Confirming your credit card limit and available credit is important. Ensure your credit card has sufficient available credit to cover the payment amount and any associated transaction fees. Attempting a transaction that exceeds your available credit can result in a declined payment and potentially impact your credit score if it indicates over-utilization. A quick check of your credit card statement or online account can provide this information.

Terms and conditions

A review of the terms and conditions of the chosen payment service is advisable. This includes understanding the service’s policies regarding credit card usage, transaction limits, and their dispute resolution process. Understanding these terms can provide clarity on how the service handles payment issues or discrepancies.

Executing the Payment Process

Once preparations are complete, initiating payment through your chosen service involves a series of clear steps. The process generally follows a similar pattern across online platforms, focusing on secure input and confirmation of details.

General steps for online payments

General steps for online payments typically begin with creating an account or logging into an existing one on the chosen payment platform. After logging in, you will usually navigate to a “send money” or “make a payment” section. Here, you will be prompted to enter the recipient’s details and the exact amount you wish to send. The system will then ask you to select your funding source, such as your linked credit card.

P2P applications

When using P2P applications like Venmo or Cash App, the process is streamlined for quick transfers. You typically open the app and select the option to “pay” or “send money.” You then enter the recipient’s username, email, or phone number, followed by the amount you intend to send. Before finalizing, the app will prompt you to select your linked credit card as the payment method, display any associated credit card processing fees, and require confirmation of the transaction. The funds are usually transferred to the recipient’s app balance almost instantly.

Third-party bill payment services

For third-party bill payment services, the procedure involves setting up the payee first. You will typically enter the recipient’s payment information, such as their mailing address for a check or bank details for an ACH transfer, along with the amount due. You then select your credit card as the payment method and input your credit card details. The service will present a summary of the payment, including the total amount with their processing fee, for your review before you submit the transaction.

Confirmation

After submitting your payment, look for a confirmation screen or email from the service. These confirmations often include a transaction ID or reference number, the amount sent, and recipient details. This information is important for your records and tracking payment status. Most services also provide a transaction history within your account to monitor payment progress and confirm delivery.

Important Considerations

When using credit cards through third-party services, several important factors warrant attention. These considerations cover security, financial implications, and the practicalities of fund receipt, helping users navigate payments responsibly.

Security measures

Security measures are important when conducting any online financial transaction, including payments made via credit card through third-party platforms. Use strong, unique passwords for your payment accounts and enable two-factor authentication (2FA). This adds an extra layer of security by requiring a second form of verification, such as a code sent to your phone, in addition to your password. Remaining vigilant against phishing attempts is also important.

Dispute resolution and fraud protection

Credit cards generally offer dispute resolution and fraud protection mechanisms for cardholders. If an unauthorized transaction occurs, credit card companies typically allow you to dispute the charge, often limiting your liability to a small amount or even zero if reported promptly. However, disputing a transaction made through a third-party service might involve first working with that service’s customer support before escalating to your credit card issuer. Understanding these layers of protection is important in case of a discrepancy.

Impact on credit score and debt

The impact on your credit score and potential for accumulating debt are important implications of using a credit card for payments. Using a credit card increases your credit utilization ratio. A high utilization ratio can negatively affect your credit score. To avoid accumulating debt and associated interest charges, pay off the full statement balance by the due date each month. Carrying a balance incurs interest, increasing the overall cost of the payment.

Time for recipient to receive funds

The time it takes for the recipient to receive funds can vary depending on the payment method used. Payments made through P2P apps often transfer funds to the recipient’s app balance instantly, though transferring those funds to a bank account can take one to three business days. For third-party bill payment services, the delivery time can range from a few business days to over a week. Confirming the expected delivery timeframe with the service and the recipient helps manage expectations for timely receipt.