Should You Put That Purchase on a Credit Card?

As you approach a register in a store or checkout page on a website, it’s natural to take out your credit card as a default form of payment. Often it’s as easy as letting autofill or your stored card information take the lead. But there are a lot of factors worth considering before swiping you card or hitting “order” on a credit card purchase. Here are some of them:

Interest

It seems pretty basic, but before you use your credit card, ask yourself: “Can I afford this?” The FICO credit score model bases roughly 30% of your credit score on the amount owed on your credit accounts, so you want to make sure you’re carrying over as little of your credit card balances from month-to-month as possible.

If you are planning on making a purchase that will require carrying a balance on your card, you need to consider how long it will take to pay off that balance and how much interest your balance will rack up. In general, the longer it takes to pay off a credit card balance, the more you’ll end up paying in interest — although some credit cards have interest-free promos that allow you to avoid earning interest for a limited amount of time.

If you have multiple credit cards, it’s also important to know your APR (annual percentage rate) for each of your cards, so that you can know which card will charge you the least interest. APRs can vary from card to card, so it’s important to be aware and manage your cards appropriately.

Fees and Minimums

While it may seem convenient to use your credit card everywhere you go, it’s not always so easy on the side of the retailer/company you’re purchasing from. Retailers often pay a swipe fee in order to take credit cards as payment, usually about 2–3% of the purchase price, and they have to deal with different payment channels like taking payment online and over the phone, in addition to in-store or by mail.

As a result, sometimes these businesses pass that expense on to the customer in the form of surcharges, convenience fees, or simply by raising the prices of goods for card-paying customers. For example, utility companies often charge a convenience fee for paying online. Some retailers — such as bodegas, bars, and convenience stores — require a purchase to exceed a minimum amount before you can use a credit card. While a minimum purchase limit is nothing to worry about if you already planned to spend the money, don’t get stuck buying extra stuff just so you can use your credit card for payment.

Alternate Forms of Payment

If you’re planning to make a large purchase, it’s worth thinking about whether or not there are better forms of payment available to you. Taxes, medical bills, and tuition, for example, can be huge expenses — and yes, you can charge them to your credit card, but you could end up paying processing fees and interest that will cost much more than the number on your bill.

If you can’t make a large purchase in cash, it might be better to put it on a personal or low-interest loan instead (these types of loans often charge less interest than credit cards). You can also see if you can talk directly to the institution, whether it’s the IRS or a university, and ask about setting up a payment plan. Before enrolling in the payment plan, make sure it works for you and your budget — and check to see whether the interest rate the institution offers is less than what you’d be paying if you put the purchase on a credit card.

Rewards

Credit cards can cost you money — in interest, in annual fees — but they can also earn you rewards. Credit card purchases can earn you cash back, airline miles, gift cards, and more. If you have a store credit card associated with a particular retailer, you may also get cardholder-only discounts and coupons.

Look into your credit card rewards programs and see where you get the most bang for your buck. The PayPal Cashback Mastercard®, for example, offers 2% cash back on every single purchase wherever Mastercard® is accepted. Other types of cards reserve their highest rewards for certain types of purchases, such as groceries or gas. Be on the lookout for how to make the most of your rewards and take advantage of them — as long as you can afford to pay off your card in full every month!

Protections

Most major credit cards offer purchase protections on certain purchases (like electronics or clothing) in the event that the items are stolen or damaged. To file a claim on a damaged or stolen purchase, you generally need to submit an itemized original receipt along with any other relevant documentation, such as a police report, to your credit card company within the eligible claim time frame, typically 90–120 days after purchase.

Credit cards also may offer perks like price protection, guaranteed returns, or extended warranties. Lots of cards also offer travel and rental car insurance, which can help save you some money.

Should You Put That Purchase on a Credit Card?

Before you decide whether or not to swipe, ask yourself:

• Can I afford to pay this purchase off on time, without getting charged interest?
• If I can’t, am I putting this purchase on the best credit card for my current situation, considering factors like APR, promos, and other benefits?
• Will putting this purchase on a credit card come with fees or hidden costs?
• Am I putting this purchase on the card that offers the highest rewards?
• Am I putting this purchase on the card that offers the best protections?

Only you can decide whether to make that purchase on a credit card — but asking these questions will help you make an informed decision. If you’re looking for help making other informed decisions about your finances, check out Money IQ’s additional resources!

Money IQ is a publication that aims to provide simple, no-nonsense personal finance advice. We’re here to dispel myths and demystify personal finance for our readers.