Bitcoin is in the news again, and you may have some serious fear of missing out.
Is there a right and wrong way to go about buying Bitcoin on a credit card? Should you open a new card to buy Bitcoin? How does buying digital currencies on a credit card affect your credit?
You may be asking yourself a lot of these questions, so we’ve put together this guide to answer some of them. If you have any questions, hit the Ask button in the top right corner of this page and someone will get back to you right away.
How can I buy Bitcoin?
First, let’s start with a quick overview of how buying Bitcoin works.
You can buy Bitcoin on an exchange. An exchange is a website where you can trade (exchange) one currency for another.
For example, you can buy Bitcoin (BTC) with U.S. Dollars (USD) on a cryptocurrency exchange much like you can exchange USD for Euros on a foreign currency exchange. Many exchanges also allow you to trade for other forms of virtual currency, like Ethereum (ETH), Bitcoin Cash (BCH), Litecoin (LTC), Ripple (XRP), and Dash.
On many exchanges, you can place a market order at the current exchange rate, or set up orders to buy and sell Bitcoins when the market rate hits a certain price.
Once you buy Bitcoin, you can keep it in a Bitcoin wallet. A wallet has a Bitcoin address, which is an address to which you and other people can send Bitcoin so it goes into your wallet. Some exchanges, like Coinbase, act like a bank for your cryptocurrency. They allow you to purchase cryptocurrency on a credit card or with your bank account, then they keep it in an account for you, so a separate wallet isn’t necessary.
There are many Bitcoin exchanges in the United States and around the world where you can buy Bitcoin instantly, but not all of them allow you to buy Bitcoin with USD. Among those that will exchange USD for Bitcoin, not all exchanges will let you use a credit or debit card as a payment method. Some will let you connect a bank account with ACH to transfer money, fund your purchase with a wire transfer, or pay with PayPal for a lower fee.
Depending on where you purchase Bitcoin, how much you buy, or how much you transfer, the exchange may ask you for personal details for identify verification. The verification process can vary depending on the exchange and where you live.
With the rising popularity of Bitcoin, there are many sites set up to scam people, take their credit card information, or steal their cryptocurrency. If you’re new to Bitcoin, I personally recommend you learn a lot more about it before you consider buying it. This guide is not intended to teach you specifically about Bitcoin, but instead to talk about the pros and cons of purchasing it on a credit card.
What should I consider before buying Bitcoin on a credit card?
There are a few major things you should keep in mind when you decide whether to buy Bitcoin on a credit card.
Impact on Your Credit Scores
If you’re thinking about buying Bitcoin on a credit card, consider how much of your available credit you’ll be using.
The percentage of your credit limits you’re using is a large factor in credit scores. This is called credit utilization. Generally, the more of your available credit you use the lower your credit scores will be.
If you’re planning on maxing out any or all of your credit cards to buy Bitcoin, that could quickly drop your credit scores. Once you pay off that credit card debt, however, your credit scores will generally return to where they were if everything else is equal — utilization doesn’t have a history in major credit scoring models.
If you’re looking to maximize your credit scores in the short term, like if you’re shopping for an auto loan, new credit card, or mortgage, it’s probably a bad idea to use up a lot of your available credit, since that will lower your credit scores and generally result in worse loan terms or denial.
Any time you pay for something on a credit card, someone is paying credit card processing fees to the credit card issuer and network to process the transaction. Usually, this fee is somewhere around 2–3%.
When you buy something in a store, for example, the retailer has baked this transaction fee into the price you’re paying. You don’t see the credit card processing cost as a separate line item. When you’re buying a cash equivalent, like currency or Bitcoin, it’s common for the issuer to explicitly tell you about the fee.
If you’re buying Bitcoin on a credit card, you’ll probably pay a credit card processing fee of at least 3%. If you’re earning rewards on the purchase, by using a card that earns 2% cash back, for example, that could cancel out part of the fee.
You may be able to avoid transaction fees or pay a smaller fee if you purchase Bitcoin with a bank transfer rather than a credit card or debit card.
Foreign transaction fees
If you use a U.S.-issued credit card to buy Bitcoin on an exchange that’s not based in the United States or in a currency other than USD, you may be charged a foreign transaction fee by your credit card issuer, depending on what card you have.
When a card charges for foreign transaction fees, it’s usually 3% of the cost of the transaction. You can avoid this by using a card that doesn’t have foreign transaction fees.
Cash advance fees
Most exchanges treat Bitcoin purchases as a regular purchase, which means they’ll fall under your credit card’s grace period and purchase APR.
However, it’s possible some exchanges and credit card issuers could treat purchases at a cryptocurrency exchange as a cash advance. Or, banks may change their policies and start treating these purchases as cash advances any time.
If you want to be safe, research the exchange you plan on using first. Find other people who have used a credit card on that exchange recently issued by the same bank as your card to ask whether the purchase was categorized as a cash advance.
You may be buying Bitcoin on a credit card simply to get rewards, and then you’ll pay off the card immediately with money you already have. In that case, you could lose money on the value of your Bitcoin, but at least you won’t be in debt.
If you’re going into debt to buy Bitcoin, however, understand that you’ll be on the hook to pay your credit card company no matter what the price of Bitcoin does. Bitcoin and other cryptocurrencies can be highly volatile. If you buy tens of thousands of dollars worth of Bitcoin and the price drops by 50% you could find yourself deep in credit card debt and unable to pay your bill on time and in full when it’s due. Credit card interest can make that situation very expensive.
Why should I buy Bitcoin on a credit card?
The main reason to buy Bitcoin on a credit card is to earn credit card rewards like points or cash back. Most credit cards have some type of rewards program, and if you get a new card it may have an introductory bonus that can earn you more rewards by spending a certain amount.
The other big reason, which may be a little riskier, is to get financial leverage. Since Bitcoin purchases are generally treated as purchases rather than cash advances, using a credit card to buy Bitcoin is a unique opportunity to make use of large credit lines from credit card issuers and possibly profit from large swings in price. Be careful if this is your reason for buying Bitcoin on a credit card, because this could easily land you in massive debt if you spend more than you can afford to pay back when the bill is due.
Should I get a new credit card to buy Bitcoin?
Many credit cards come with bonus rewards if you spend a certain amount in the first few months that you have a new card. These offers are designed to attract new customers, and it’s one reason you might want to consider getting a new credit card if you’re buying a lot of Bitcoin.
Usually, introductory bonus offers require that you spend $1000–$5000 within the first 3 months that you have the card to get a bonus valued in the $100–$750 range.
If you’re planning on buying at least a few thousand dollars worth of Bitcoin and you have excellent credit, it might be worth it for you to apply for a new credit card so you get a rewards bonus on top of any credit card rewards you’re already earning.
By combining a reward bonus on a new card with any regular rewards it earns on purchases, you may be able to come out ahead in rewards value even if you were to buy Bitcoin on a credit card then sell it at the same price.
There’s a second major reason you might want to consider opening a new credit card if you’re buying a lot of Bitcoin.
As we mentioned earlier, the percentage of your credit limits you’re using impacts your credit score. If you start using a lot of your available credit, you’ll usually see a big drop in credit scores.
You can minimize the credit score impact of high balances by opening a new card, since that will give you additional available credit. You could also ask for a credit limit increase instead if you’re concerned about high utilization.
Where can I buy Bitcoin on a credit card?
There are many exchanges around the world, and as I mentioned earlier some are scams. Research any exchange you plan to use thoroughly before you take action. Some examples of exchanges that accept credit cards for cryptocurrency purchases are:
- Bitstamp (BTC, BCH, ETH, LTC, and XRP)
- Cex.io (BTC, DASH, and ETH)
- Coinbase (BTC, BCH, ETH, and LTC)
- Coinmama (BTC and ETH)
- BitPanda (BTC, BCH, DASH, ETH, and LTC — Only accepts certain types of Visa and Mastercards common in Europe)
What kind of credit card should I use to buy Bitcoin?
There aren’t any special cards that will earn you more rewards specifically for buying Bitcoin or cryptocurrencies.
Consider the rewards programs on cards you already have, and what kind of rewards value you could get from cards you already have compared to opening a new card that earns rewards.
Depending on how much Bitcoin you plan on buying, it may make sense for you to open a new card so you can increase your available credit and get an introductory bonus. In that case, look for a card that will fit your spending needs or provide you with other benefits even after you’ve used the card to purchase Bitcoin and get the introductory bonus.
For example, you take this opportunity to open a new travel card to get points you can transfer to an airline mileage program. Or, you might decide you want to open a high-end travel card like the Platinum Card from American Express (Review) or Chase Sapphire Reserve (Review) that tend to have the highest signup bonus and lots of benefits, but have higher annual fees than most other cards.