What Can I Use My Credit Card For?

A credit card functions as a payment card, issued by a bank or financial institution, allowing individuals to purchase goods or services or access cash on credit. It provides a revolving line of credit, enabling cardholders to borrow, repay, and borrow again, up to a set limit. The card issuer pays the merchant, and the cardholder repays the borrowed amount, potentially incurring interest if the balance is not paid in full by the due date.

Everyday Spending and Bill Payments

Credit cards are widely accepted for daily financial transactions, offering convenience and flexibility. In physical stores, credit cards are used at point-of-sale terminals through various methods like swiping the magnetic stripe, inserting the chip into a reader, or tapping for contactless payments. These transactions send account details to the merchant’s bank, which then seeks authorization from the card issuer through a payment network.

Online purchases involve entering card details, including the card number, expiration date, and security code, into e-commerce websites. Credit cards are a common payment method for a wide array of online vendors.

Credit cards can also be used to pay recurring bills, including utilities, phone services, internet providers, streaming subscriptions, and insurance premiums. Payments can be set up directly with service providers or managed through online banking platforms, automating the process.

For travel expenses, credit cards are routinely used to book flights, hotel accommodations, and rental cars. They are also widely accepted for other travel-related services, providing a convenient way to manage costs and unexpected expenses during trips.

Dining out and entertainment activities also frequently involve credit card payments. Restaurants, movie theaters, concert venues, and other leisure establishments commonly accept credit cards, offering a convenient way to pay without needing cash.

Cash Access and Balance Transfers

Credit cards offer specific functionalities for accessing cash or moving existing debt. These uses have distinct mechanisms and cost structures, differing from everyday spending.

Cash Advances

A cash advance allows a cardholder to obtain physical cash directly from their credit card’s available credit limit. This can be done at an ATM with a PIN, in person at a bank branch, or through convenience checks. The amount withdrawn is immediately added to the credit card balance.

Cash advances typically incur immediate fees, often ranging from 3% to 6% of the advanced amount, or a flat fee of around $10, whichever is greater. Unlike standard purchases, interest begins accruing from the transaction date, as there is no interest-free grace period. The Annual Percentage Rate (APR) for cash advances is higher than for regular credit card purchases. Cash advance limits are often a percentage of the overall credit limit and are lower than the total credit line available for purchases. For example, a card with a $5,000 credit limit might only allow a cash advance of $1,500.

Balance Transfers

A balance transfer involves moving existing debt from one credit card or another eligible loan to a new or existing credit card. The primary purpose is to consolidate multiple debts or to take advantage of a lower introductory Annual Percentage Rate (APR) on the transferred balance. This process begins by contacting the new card issuer and providing account details.

Balance transfers commonly include a fee, usually a percentage of the transferred amount, often 3% to 5%. This fee is added to the new balance. While many balance transfer offers include an introductory period with a low or 0% APR, interest will apply to any remaining balance once this promotional period ends. The interest rate after the introductory period may vary based on creditworthiness and card terms.

Prohibited or Restricted Transactions

Credit cards generally have specific limitations on their usage, preventing certain types of transactions or restricting them under particular circumstances. These restrictions are in place due to issuer policies, legal regulations, or the nature of the transaction itself.

Credit cards cannot be used for any illegal activities or purchases, including illicit goods, unauthorized services, or illegal gambling. Such uses are prohibited by card issuers and payment networks, and attempts will be declined.

Certain merchant categories or transaction types may face restrictions from card issuers or payment networks. For instance, some direct transfers to personal bank accounts not classified as cash advances might be blocked. Specific cash equivalents, like money orders or wire transfers, can be treated as cash advances or entirely restricted. Some cryptocurrency purchases may also be restricted by card issuers.

Attempts to make purchases that exceed the credit limit will be declined. Card issuers set a maximum amount of credit, and transactions over this threshold are not authorized. This helps manage cardholder debt and issuer risk.

Credit cards cannot be used to directly pay off other credit card debt at a different institution, unless processed as an official balance transfer. Similarly, direct peer-to-peer transfers not integrated payment services might be restricted or categorized as cash advances. Even legal gambling sites or establishments often do not accept credit cards due to issuer policies or regulatory considerations, preventing direct charges for wagers.