How to buy bitcoin using a credit card — and the drawbacks you'll face

• You can buy bitcoin with a credit card, but it depends on the crypto exchange you're using.
• Buying bitcoin with a credit card may trigger fees from both the company and the crypto exchange.
• You could end up owing more on your credit card than what your bitcoin is worth if the price drops.

Bitcoin, which made its debut in 2009, is a cryptocurrency — a digital form of money that exists without a central government or bank. Over the last few years, Bitcoin has gone from an obscure method of payment to a mainstream investment option. 

With its rise in popularity and the lure of massive gains, investors who may not have the largest budgets are looking for a way to get in. For some, using a credit card to purchase Bitcoin seems like a savvy way to own the cryptocurrency and use the future gains to pay off the debt and fees. But can you actually buy bitcoin with a credit card? If so, what are the risks? 

Can you buy bitcoin with a credit card? 

Yes, it's possible to buy bitcoin with a credit card. But it depends on what exchange you're using. Some crypto exchanges do allow you to buy bitcoin with a credit card — but they do come with fees.

Your ability to purchase crypto with a credit card will also depend on the credit card issuer.

"[American Express] specifically prohibits purchasing currency with their card but, for now, allows purchases of cryptocurrency," says Courtney Richardson, Esq., founder of The Ivy Investor. If your chosen exchange and credit card issuer allow you to make the purchase, the process for setting up these transactions is very similar to the process to link and verify your bank account via ACH (automated clearing house). 

Is it a good idea to buy bitcoin with a credit card? 

Using a credit card to buy Bitcoin or any other cryptocurrency is not recommended. "I prefer individuals to purchase bitcoin with cash," says Dr. Hans Boateng, founder of the Investing Tutor. Using a credit card to buy Bitcoin is a highly speculative and expensive proposition in which the drawbacks tend to outnumber benefits. 

Additionally, Bitcoin purchases are usually assessed differently than regular purchases by credit card issuers. "In many cases, purchasing cryptocurrency is considered risky behavior and the credit issuer may close the card or have the credit limit lowered," adds Richardson. 

Here are the main drawbacks of buying bitcoin with a credit card:

Broker fees

Cryptocurrency exchanges make money through transactional fees but for the use of a credit card you may be charged even more. So you may be facing broker fees should you to choose to buy bitcoin with a credit card.

For example, Crypto.com allows credit card purchases and charges 2.99% for credit and debit card fees, but this is waived for the first 30 days. 

Credit card fees

Generally, credit cards treat cryptocurrency purchases like a cash advance which, depending on the card you have, could be between 25% to 27% APR and would begin accrual immediately. 

This is in addition to the fee for using the cash advance from the credit card issuer. In some cases it can be $10 or 3% of the cash advance, whichever is greater. 

Foreign transaction fees  

If an exchange is based outside of the US, your credit card may also add a foreign transaction fee for each purchase. This fee could range between 1%-3% per purchase. 

Credit utilization ratio increase

There are various factors that make up your credit score. One of these factors is credit utilization ratio, which makes up 30% of your credit score. Buying Bitcoin can use up your available credit, potentially lowering your credit score. Even if the value of Bitcoin falls, your credit utilization stays the same.  

Fees are not the only risk of buying Bitcoin with a credit card — volatility is a big factor, which Bitcoin is known for. "The most significant risk is understanding that Bitcoin is a new technology with a high level of speculation," Dr. Hans says. 

Bitcoin has had large price swings over time, which can negate the perceived advantages of using a credit card to buy crypto — and it may also put the buyer "underwater" if they end up paying more in credit card debt than the asset is worth. This becomes especially dangerous when factoring in interest on the credit card if the balance cannot be paid in full and the price of Bitcoin is falling. 

Credit cards offering Bitcoin rewards

While using a credit card to buy bitcoin may not be the best idea, there are a few credit cards that can help you earn rewards in Bitcoin for typical day-to-day purchases. Keep in mind that even with a bitcoin rewards card, its benefits may erode if you're paying late fees and interest charges on the balance. 

• BlockFi Bitcoin credit card: With this credit card, all purchases earn a percentage back in Bitcoin. If you meet a certain spending threshold, you can earn a higher rate.  
• SoFi credit card: In April 2021, SoFi was the first company to redeem rewards points directly into cryptocurrency via their SoFi Invest app. 
• Brex credit card: This is a credit card for business owners and rewards cardholders up to 8x in Bitcoin or Ethereum. 
• Venmo credit card: In a recent company announcement, Venmo will enable a new feature that allows Venmo Credit Cardholders to use monthly cash back in their Venmo account to auto-purchase the cryptocurrency of their choice, with no transaction fees.
• Crypto.com rewards Visa: Crypto.com offers a range of credit cards ranging from 1% to 8% in rewards depending on the card. 

The financial takeaway

While it is possible to buy Bitcoin with a credit card, it isn't the most sound financial decision given the risk of the asset and the fees. These fees not only reduce your potential gains, but they can also impact your credit score if your purchase is large. "Use cash to purchase, dollar cost average, and look into other ways to get rewarded for crypto," says Richardson.