When to Use a Credit Card for Big Purchases
Using credit cards to pay for big purchases could be a good idea when you'll earn rewards, want to qualify for an intro bonus, have a promotional rate or your card offers purchase benefits.
It may also be the best option if you need to deal with an emergency you can't afford to pay for all at once. While ideally, an emergency fund could help you cover these expenses, using a credit card is often an easier and less expensive alternative to taking out an emergency loan.
If you're planning a large purchase, or worry one may pop up unexpectedly, make sure you understand when using a credit card is best and how using your credit card can impact your credit scores.
How Using a Credit Card for Large Purchases Affects Your Credit
The amount you earn or spend on your credit cards doesn't directly impact your credit scores. What matters is how close you get to the credit limit on each one of your cards, even if the dollar amount is relatively low.
The amount of credit you use relative to your card's limit is called your credit utilization ratio, and it's the second most important credit scoring factor. Using a large portion of your credit limit—or having a high utilization ratio—can hurt your scores, while using a small portion is best for your scores. For this reason, using your credit card to make a large purchase could hurt your credit if it increases your credit utilization ratio.
An important detail to remember is that the credit utilization calculation depends on what's on your credit report. Generally, credit card companies send an update to the credit bureaus around the end of your card's statement period, which is about three weeks before your bill's due date.
As a result, if using your card to make a large purchase brings you close to your credit limit, it will raise your utilization rate even if you pay your bill in full and on time. If you have the money available, you can avoid this by paying down your card's balance before the end of your statement period.
When Is It a Good Idea to Put a Big Purchase on a Credit Card?
Using a credit card for big purchases can be advantageous in different circumstances and for different reasons:
You'll Earn Rewards
Whether you have a cash back credit card or prefer travel rewards, using your credit card for a large purchase can be a good way to earn lots of rewards, as long as you have a plan for paying the bill. Even if you do have a plan, however, don't justify the purchase solely because it'll earn you rewards.
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You Can Qualify for an Intro Bonus
Many rewards credit cards offer an intro or sign-up bonus you're eligible to earn if you use your new card to spend a certain amount of money during the first few months you have it. If you have a big purchase coming up, it could be a good time to apply for a new card that has a large sign-up bonus.
Your Card Has a Promotional Rate
Some credit cards offer a promotional interest rate, such as a 0% annual percentage rate (APR), during an introductory period. If your card has a promotional rate on purchases, you may want to use it for your large expenditure and then pay off the balance before you're charged interest. Have a plan for paying off the balance before the end of the promotional period, or the balance will start to accrue interest based on the card's standard APR.
Your Card Offers Purchase Protections or Benefits
Credit card issuers and networks offer a variety of benefits when you use your credit card to buy something. These may include:
- Extended warranties
- Purchase protection
- Return protection
- Cellphone protection
- Travel insurance
- Trip or baggage delay coverage
- Rental car insurance
- No foreign transaction fees
These benefits apply to all eligible purchases, but can be particularly important for big purchases.
For example, if you buy a television that has a one-year manufacturer's warranty, your credit card may offer a free additional year of warranty coverage. You may also be able to get reimbursed if the retailer won't take a return or if the TV is damaged or stolen during the first few months of ownership.
When you use a credit card, you can also dispute a charge if the company doesn't provide the service or product you paid for. The credit card company may then be able to reimburse you for the purchase.
You're Dealing With an Emergency
Having a credit card for emergencies can also help you pay for large expenses right away. Whether you need to quickly buy a flight, pay for auto repairs or cover necessary bills while you're out of work, you could use a credit card and pay off the bill over time.
While credit cards tend to have high interest rates, you may wind up paying less than you would by taking out a personal loan if you have bad credit. And their high rates are still much lower than what you could expect with a payday loan or pawn loan. However, if you can, try to use a low rate credit card rather than a rewards credit card, as rewards cards commonly have higher interest rates.
Common Large Purchases to Make With a Credit Card
Because of these benefits, there are a few common purchases that people tend to use credit cards for:
- Appliances and electronics: Card-issuer purchase protections can be particularly handy when you're buying expensive big-ticket items.
- Hotel stays and airline tickets: A card's travel benefits only apply if you use the card to make applicable purchases, and travel rewards cards may offer bonus rewards on travel purchases.
- Rental cars: The benefits when renting a car are the same as those for hotel stays and airline ticket purchases. Plus, some rental agencies require a credit check if you want to use a debit card.
Also keep in mind that frequent purchases can add up to become a major monthly expense. For example, people who tend to cook at home or have large families may wind up spending hundreds of dollars at grocery stores every month. A rewards credit card that offers bonus points at grocery stores could be a good fit.
When Not to Use a Credit Card for Big Purchases
Using a credit card for large purchases isn't always a good idea. A big impulse buy could lead to regret—and debt—later on, particularly when you're working to pay off credit card debt as your new purchases will start to accrue interest right away. Adding a new, big charge at this point can lead to paying more interest, which will make it more difficult to pay off your card.
If you're stuck and need to make the purchase, you may want to use your credit card for all the reasons listed above. But if you can go without, focus on paying down your credit card debt rather than adding to your balance.
You also don't want to use a credit card for large purchases if doing so will cause you to incur an extra fee. These convenience fees may be around 2% of the purchase price, which can be a significant amount on a large purchase.
Choose the Right Card for the Job
Picking the right card is most important when you're making large purchases. Differences between rewards programs, promotional rates, promotional periods, benefits and purchase protections will all factor into the rewards you'll earn or how much interest you can avoid paying.
If you think you might want a new card for your big purchases, you can quickly compare cards and current offers using Experian's card comparison tool.
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About the author
Louis DeNicola
Louis DeNicola is freelance personal finance and credit writer who works with Fortune 500 financial services firms, FinTech startups, and non-profits to teach people about money and credit. His clients include BlueVine, Discover, LendingTree, Money Management International, U.S News and Wirecutter.
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