As of March 2020, there were more than 5,100 different cryptocurrencies in existence, worth about $231 billion, according to a recent study from the Congressional Research Service. And as the use of cryptocurrency hits record highs, more people want to get their own piece of the potential.
To purchase cryptocurrency, you’ll have to use an exchange, which is essentially a website where you can trade one currency for another currency. For example, you would use an exchange to trade U.S. dollars for Bitcoin, Ripple, or another cryptocurrency that you’re interested in purchasing. If you’ve landed on an exchange that accepts credit cards, you might consider using one for your purchase.
However, using your credit card to purchase cryptocurrency isn’t like using your credit card to purchase a book from the bookstore. It’s riskier and more expensive. Learn about how the process works and the potential drawbacks to expect.
Can You Buy Crypto With a Credit Card?
You can purchase cryptocurrency with a credit card if your card issuer and payment network allows the transaction type. With American Express, for example, cryptocurrency purchases are allowed, treated as a cash advance, and may be subject to a cash advance limit. In April 2021, Chase will start counting purchases of cryptocurrency as a cash advance transaction, too.
Credit card issuers that do block the purchase of cryptocurrency have varying reasons. Capital One, for example, made the decision to decline cryptocurrency purchases to protect cardholders from fraud, losses, and market volatility. You can check with your credit card issuer to find out whether they’ve blocked cryptocurrency purchases before initiating a transaction.
Coinbase—one of the largest cryptocurrency exchanges—lists only bank accounts, debit card, wire transfer, and PayPal as acceptable payment methods to link to your account; however, there are limitations to what you can do with a wire transfer and PayPal.
How Does Buying Crypto With a Credit Card Work?
Before using your credit card to purchase cryptocurrency—or before purchasing cryptocurrency at all—you should know how the process works and the potential fees associated with it.
You May Have to Pay a Transaction Fee
The cryptocurrency exchange may charge a transaction fee when you use a credit card or a debit card to purchase cryptocurrency, which they will disclose to you at the time of your transaction. Using ACH (your checking account and routing information) takes a few days to post to your account, but it’s usually free. You’ll have to make a choice between fast and expensive, or slow and free. Rushing to buy because you think prices may go up again may not be the wisest decision.
The Purchase May Be a Cash Advance
If the transaction is processed as a cash advance, as the case is with American Express, you’ll pay a cash advance fee on top of any transaction fee the cryptocurrency exchange charges. The typical cash advance fee on a credit card is either $5 or 10% of the amount of the transaction, whichever is greater. So, if you use your credit card to purchase $1,000 of cryptocurrency, you could pay a $100 fee to your credit card issuer.
You’ll also be subject to the higher cash advance APR on your credit card and you won’t get a grace period, even if you use a credit card with a zero balance. If this is the case, you’ll start incurring interest from the day you make the transaction.
As a result of the potential fees, using a credit card to buy cryptocurrency is much more expensive than regular purchases. The purchase won’t earn rewards or help you reach the spending requirements for earning a sign-up bonus on a new credit card.
There Could Be a Foreign Transaction Fee
If the cryptocurrency exchange is based outside the U.S., you could incur a foreign transaction fee. Foreign transaction fees, charged by your credit card issuer, are typically 3% of the transaction amount. That’s a $30 foreign transaction fee for every $1,000 of cryptocurrency you purchase.
You May Have a Daily Limit
Depending on the platform, there may be a limit to the amount of cryptocurrency you can purchase. Check your account settings after logging into your cryptocurrency exchange account to verify your limits.
Drawbacks to Buying Crypto With a Credit Card
Purchasing and investing in cryptocurrency is often considered a risky move. While there are many benefits to purchasing cryptocurrency, when it comes to buying with a credit card, you should be aware of potential drawbacks.
Your Credit Card Information Could Be at Risk
Many cryptocurrency exchanges are scams and prey on people's eagerness to earn a profit, so it’s important to research thoroughly before you make any cryptocurrency purchases. Of course, credit card fraud protection eliminates your liability for fraudulent purchases made on your credit card. Still, you want to be sure you're not being scammed no matter what payment method you use.
Your Credit Score Could Be Impacted
Credit utilization—the amount of credit you use—is a major factor in your credit score. The more of your credit you use, the more it affects your credit score. Running up a big credit card balance on cryptocurrency is likely to be damaging to your credit score. It’s even worse if you charge more than you can afford to pay and fall behind on your payments.
- If you were hoping to earn rewards on your purchase, they’ll be washed out by transaction and cash advance fees you pay.
- The lack of a grace period means you’ll have to pay off the purchase immediately to avoid paying interest and protect your profits.
- Some credit card issuers may not allow you to use your credit card to purchase cryptocurrency.
Frequently Asked Questions (FAQs)
What are the best ways to buy cryptocurrencies?
How can beginners buy bitcoin?
The best way to buy bitcoin is through a mobile digital wallet or ATM if you are getting started. For large transactions, finding online resources like Coinbase is a safer option.