Using a credit card for large purchases can help you qualify for sign-upbonuses (also known as new cardmember bonuses) and give you moretime to pay for items, but it also has the potential to impact your creditscore. This article will review:
- What qualifies as a big purchase?
- Will using a credit card for big expenses affect your credit?
- When putting large expenses on a credit card could be a good idea
- When putting large expenses on a credit card is probably a bad idea
- Best types of cards to use for big purchases
What qualifies as a big purchase?
When you hear “big purchase," you probably think of a family trip, a newTV or new furniture. However, a big purchase isn't necessarily related tohow much the item costs. Instead, you should think of it in terms of yourcredit utilization ratio, which compares the credit you're using with yourcredit limit.
A large purchase is one that would bring you over 30 percent of yourcredit utilization, the percentage that most experts agree you shouldstay under. So, simply put: “big" depends on your overall credit limit.
How can I raise my credit limit?
Credit limits are based on credit history. You can call your issuer andask for your limit to be raised, but you could be denied for the increase.You should know that credit limit requests will result in a hard pull onyour credit report, which could hurt your score.
Will using a credit card for big expenses affect your credit?
Using a credit card for big expenses can affect your credit score if theyraise your credit utilization ratio too high. Keep in mind that issuers sendactivity reports to the credit bureaus at the end of your statementperiod. To avoid maxing out your credit limit, make sure you can pay off any remaining balance before your statement closes.
When putting large purchases on a credit card could be a good idea
Putting large expenses on your credit card might be a good idea if:
- It will help you get a sign-up bonus or rewards: Some cardshave sign-up bonuses which require you to spend a certain amountof money in the first few months that you have the card. Other cardsoffer points or cash back, so purchasing a big-ticket item can helpyou rack up rewards.
- You'll qualify for a 0 percent APR card: If you have good creditand can qualify for a 0 percent APR card, you can use it to pay foryour purchase as long as you'll be able to pay off the balance beforethe promotional period ends. Using a card that charges zero interestfor an introductory or promotional period will give you more time topay for the item, rather than having to put all the cash down at once.
- You'll get an extended warranty or purchase protection: Some issuers offer benefits like extended warranties or purchase protections on products bought with their cards. These perks can be especially helpful with expensive items like TVs or international trips.
When putting large purchases on a credit card could be a bad idea
Putting large expenses on your credit card is probably a bad idea if:
You'll start to accrue interest on the item: More expensiveitems will mean more interest to pay if you don't pay off the balancein full and on time. If you're already carrying a balance month tomonth, you should focus on paying it down rather than increasing it.
It will hurt your credit: Depending on your credit limit and the costof the item, you could raise your credit utilization ratio, which couldpotentially damage your credit score.
What types of big purchases do people frequently put on cards?
Common big purchases people put on credit cards include travel costs(i.e. flights and hotels), electronics, furniture and car rentals.
Best types of credit cards to use for big purchases
If you're ready to make a big purchase, look for cards that have longinterest-free or low-interest periods or that allow you to earn points orrewards. Cards with attractive sign-up bonuses can also be ideal if youplan to spend a lot of money in a short period of time.
Keep in mind that your credit score will need to be good to excellent toqualify for the best rates and rewards.
