9 Things to Keep in Mind before Buying Cryptocurrency with Your Credit Card

The number of people using credit cards to buy Cryptocurrency has been on the rise. Before you decide to go down this path, you must know what the risks are and your options for prot

ecting yourself. This article will cover:

(I). Can you buy Crypto With a Credit Card?

(II) Why won’t credit card companies allow you to make crypto purchases?

(II). Things to Keep in Mind before Buying Cryptocurrency with Your Credit Card.

Can you buy Crypto With a Credit Card?

The short answer is yes. However, Suppose you’re looking to buy Cryptocurrency with a credit card. In that case, your best option is to check with your credit card issuer to see if they allow this. Most credit card companies will allow you to buy cryptocurrencies using your credit card, although most large U.S. credit card issuers do not enable the purchase of Cryptocurrency, and others charge consumers with penalties.

For Example, big cryptocurrency exchanges, like Coinbase, don’t allow you to purchase Cryptocurrency using a credit card. However, Coinmama and CEX.io do, but only Visa and Mastercard are accepted.

Why won’t credit card companies allow you to make crypto purchases?

There are many reasons, but the most common ones are:

#1. Cryptocurrency is a novel and evolving market with different values than fiat currency.

Cryptocurrencies are essentially speculative investments, and because of this, credit card companies want to protect their consumers against market fluctuations. Cryptocurrency transactions are not reversible.

Suppose you mistakenly send the wrong amount of Cryptocurrency to someone. In that case, they will not be held accountable for returning it or giving you a refund.

Cryptocurrency transactions cannot be charged back like credit card purchases– once the transaction is done, it is final. Cryptocurrencies can be stolen by hackers in large numbers during public-key cryptography due to blockchain activity.

Cryptocurrencies are often used on dark web marketplaces where people buy drugs and other illicit goods/services (this contributes to why Cryptocurrency isn’t viewed positively).

#2. Cryptocurrency purchases can be high-risk transactions (due to price volatility)

Because Cryptocurrencies are considered a high-risk investment, credit card companies want to protect their customers from potential losses. Cryptocurrency purchases can be seen as cash advances since payment transactions of Cryptocurrencies are similar to bank transfers (and not purchases). 

Before you purchase Cryptocurrency with your credit card, make sure that the exchange is reputable and will provide you with all the information required for making payments.

#3. Cryptocurrencies aren’t regulated, Cryptocurrencies can be used to fund illegal activities.

Bitcoin (the most popular Cryptocurrency available) was founded by Satoshi Nakamoto in 2008.

Since Cryptocurrencies are not regulated, people can use Cryptocurrencies to fund illegal activities without getting tracked down. Cryptocurrency transactions are decentralized and publicly recorded on a shared database called the “Blockchain” (which makes it easier for hackers to steal Cryptocurrencies).

#4. Cash equivalence: 

Cryptocurrency can also be traded for actual currency, which can bring up potential money laundering, tax evasion, and other legal problems. This is the same reason many card issuers won’t allow you to purchase money orders.

Cryptocurrency is a digital or virtual currency that uses cryptography to secure its transactions and control new units. Bitcoin, created in 2009, was the first decentralized Cryptocurrency.

Cryptocurrency has been growing in popularity, and as a result, more and more credit card companies are starting to outright block any purchases of Cryptocurrency. So if you’re looking to buy some crypto, you’ll need to be diligent in your search for a credit card company that doesn’t have such a policy in place. And even if you do find an issuer that allows crypto purchases, be prepared to pay a premium for that privilege.

Things to Keep in Mind before Buying Cryptocurrency with Your Credit Card.

Things to Keep in Mind before Buying Cryptocurrency with Your Credit Card
Things to Keep in Mind before Buying Cryptocurrency with Your Credit Card

Cryptocurrencies are becoming more and more popular, and many people choose to invest in them. If you’re thinking of buying Cryptocurrency with your credit card, keep these seven things in mind:

#1. Make sure you understand the risks involved

Cryptocurrencies are volatile and can go up or down in value very quickly. Don’t invest more money than you’re willing to lose, and consider using a lower amount of money if the Cryptocurrency market seems very unstable.

#2. Check your credit limit. Don’t spend more money than you can afford to pay back.

Cryptocurrencies aren’t regulated in the way that conventional currencies are, and depending on which Cryptocurrency you choose to invest in, it’s possible that your investment could become completely worthless overnight.

#3. Cryptocurrency transactions can be high-risk transactions (due to price volatility)

Some credit card companies may charge fees for processing cryptocurrency purchases or decline your transaction entirely if they believe you’re using Cryptocurrency to fund illegal activity. Cryptocurrencies also aren’t protected by any Federal Deposit Insurance Corporation (FDIC), like bank accounts, and debit cards are. Suppose Cryptocurrency is stolen from your account (either through fraud or a data breach at a Cryptocurrency company). In that case, it’s unlikely that you’ll get reimbursed by the Cryptocurrency company or your credit card issuer. So if Cryptocurrency is stolen from you, you’re out of luck.

Read More: Build a Credit History with Debit Card

# 4. Be aware of the fees involved. 

Credit card companies often charge a fee for foreign transactions. Make sure you know how much that fee will be before buying any cryptocurrency. Cryptocurrencies can be traded for other Cryptocurrencies or conventional currencies, so if you want to get Cryptocurrency using another form of currency, make sure your credit card company will allow you to convert one type of currency into the other.

# 5. Cash advance penalties from the card issuer

A credit card company is most likely to think you are withdrawing money from an ATM when buying Cryptocurrency. That is not good for you because it usually comes with the following problems:

  • Cash advance fee: This is a fee that you get charged when you get money out of your credit card. The Cas advance fees vary from 3-5%. For Example, you would get charged $3.00 for every $100 of Crypto purchased with a Credit card.
  • Higher interest rate: Cash advances are more expensive than regular credit card purchases; Credit card companies usually charge anywhere between 10%-30% interest on cash advance transactions.
  • No grace period: Cryptocurrencies may be considered cash advances if Cryptocurrencies are bought with a Credit card. So when you use a credit card to buy Cryptocurrency, you don’t get any grace period (the time between the purchase and when the interest starts accruing). For Example, you would get charged interest on a Cryptocurrency purchase from the moment Cryptocurrency is bought.
  • Lower credit limit: Some credit cards have a separate cash advance limit. This is less than the credit limit in general.
  • No rewards points: Cryptocurrency purchases do not earn rewards points.

# 6. Cryptocurrencies aren’t covered by the Fair Credit Billing Act:

The Fair Credit Billing Act (FCBA) isn’t in place to protect Cryptocurrency transactions from fraud or Cryptocurrency companies from bankruptcy. Cryptocurrency is a newer form of currency, and it doesn’t have federal insurance. Cryptocurrency isn’t protected from fraud or bankruptcy, so if you’re scammed by a Cryptocurrency company or Cryptocurrency is stolen from your Cryptocurrency account, there’s nothing that can be done to recover those funds.

#7. Foreign Transaction Fee.

If you’re sending or receiving the money to or from an overseas cryptocurrency exchange, keep in mind that you might be charged a foreign transaction fee. Foreign transaction fees, which are levied by your credit card company, range from 3% to 5%. For every $1,000 of Cryptocurrency purchased, you will pay a $30 foreign transaction fee.

# 8. Your credit card information may be at risk.

When it comes to buying cryptocurrencies, it’s important to be careful. Many exchanges are scams, and they’ll take advantage of your eagerness to make a profit. So do your research before you buy anything! And don’t forget that your credit card offers fraud protection- so you’re not liable for any fraudulent purchases. Just be sure you’re not being scammed no matter what payment method you choose.

# 9. Your credit score is likely to be impacted.

If you’re using a lot of your available credit, it will damage your credit score. It’s even worse if you charge more than you can afford to pay and fall behind on your payments. So be careful with how much you’re spending on Cryptocurrency!

Final Thought

Cryptocurrencies are becoming more and more popular, and many people choose to invest in them. If you’re thinking of buying Cryptocurrency with your credit card, keep these seven things in mind:

  • You may be charged a cash advance fee for buying Cryptocurrency with a Credit Card.
  • Cash advances usually come with a higher interest rate than regular purchases.
  • There’s no grace period when using a Credit Card to buy Cryptocurrency.
  • ‘Crypto’ isn’t covered by the Fair Credit Billing Act, so if you’re scammed, or your funds are stolen, there’s little that can be done to recover them.
  • If you’re sending money overseas to purchase Cryptocurrency, it may be charged a foreign transaction fee.
  • Suppose Cryptocurrency is purchased with your Credit card. In that case, it will affect your credit score by increasing the amount of available credit you have.
  • You’re likely to fall behind on payments if Cryptocurrency purchases are made with cash advances because Cryptocurrency isn’t protected from fraud or Cryptocurrency companies from bankruptcy. Cryptocurrency is a newer form of currency, and it doesn’t have federal insurance. Cryptocurrency isn’t protected from fraud or bankruptcy, so if you’re scammed by a Cryptocurrency company or Cryptocurrency is stolen from your Cryptocurrency account, there’s not much that can be done to recover those funds.

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