Why You Should Avoid Buying Crypto With A Credit Card

With the celebration of Bitcoin's 16th birthday, cryptocurrencies are a hot trend these days. Wall Street is increasingly investing in them, and many people are looking to purchase them. It is possible to fund such a crypto account in a variety of ways. The primary means are through bank transfers, PayPal accounts, debit cards, and credit cards.

Each of these payment methods offers its own advantages and disadvantages. Bank transfers are often popular because they enable larger transfer limits and entail lower fees. Most of the big exchanges work with ACH bank transfers. Debit cards allow for speed and convenience, with many of the exchanges supporting this method of payment. PayPal even offers crypto purchases and holdings directly into customer accounts, though this comes with a higher fee. Buyers should beware the alarming Bitcoin ATM scam.

Many individuals wonder about using credit cards to fund their cryptocurrency buys. It is possible to use these cards by following a procedure. Though credit cards allow for simple and fast transactions that provide nearly instant access to the funds, it is better to avoid buying crypto this way. There are both costs and dangers to consider when contemplating using a credit card to purchase crypto.

Not every exchange will permit individuals to purchase cryptos using a credit card. In October of 2024, three that did allow cryptocurrency purchases with these cards were Kraken, CEX.IO, and Coinbits. The credit card issuers themselves may have their own particular policies, currency limits, and exchange location rules.

To pursue the credit card purchase route, there are a few steps involved. Prospective buyers need to begin by picking out one of the exchanges that permits credit card transactions. It is smart to compare the exchange policies on fees, security, and the variety of cryptocurrencies they offer. The majority of these exchanges will insist on some type of identity verification process as government regulations mandate. Such procedures involve uploading a valid government issued ID to the exchange, such as a driver's license or passport.

Potential buyers should anticipate the need to contact their credit card provider ahead of the purchase to make them aware of the coming transaction. Failing to comply with this advice quite often leads to an automatic decline in the purchase. Crypto buyers will also find that a number of credit card companies have their own policies against members buying cryptocurrency.

Despite the interest in using credit cards to fund crypto purchases, there are several reasons to think twice about the payment form. Fees from the credit card provider and the exchange for using credit can be steep. The majority of crypto exchanges assess 2% to 3% for credit card use, substantially higher costs than with bank transfers. Credit card providers may classify crypto purchases as cash advances and assess a three to five percent fee for the convenience. A final blow may be three percent foreign transaction fees that credit card issuers typically charge when the exchange is outside the card issuer's nation.

Credit card security risks are another key danger to consider when using them for crypto purchases. Reputable exchanges do their best to secure customer payment data, but hundreds of platforms out there have questionable legitimacy. Some of them may be vulnerable to fraud or hacking. Credit card companies do provide fraud protection, but disputes take time and cause great frustration.

A final risk to consider is the impact on credit scores and debt load. Purchases on credit cards boost consumers' credit utilization ratio that can harm credit scores. It is too easy to carry balances that create higher interest debt, and this interest is increasing the cost of the investment. Keys to financial health for investors are to only invest amounts that they can safely afford and to begin with purchases appropriate to their own financial situation.