Paying for large purchases with your credit card

Using a credit card for large purchases can help you qualify for sign-up bonuses (also known as new cardmember bonuses) and give you more time to pay for items, but it also has the potential to impact your credit score. 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 new TV or new furniture. However, a big purchase isn't necessarily related to how much the item costs. Instead, you should think of it in terms of your credit utilization ratio, which compares the credit you're using with your credit limit.

A large purchase is one that would bring you over 30 percent of your credit utilization, the percentage that most experts agree you should stay 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 and ask 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 on your 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 they raise your credit utilization ratio too high. Keep in mind that issuers send activity reports to the credit bureaus at the end of your statement period. 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 cards have sign-up bonuses which require you to spend a certain amount of money in the first few months that you have the card. Other cards offer points or cash back, so purchasing a big-ticket item can help you rack up rewards.
• You'll qualify for a 0 percent APR card: If you have good credit and can qualify for a 0 percent APR card, you can use it to pay for your purchase as long as you'll be able to pay off the balance before the promotional period ends. Using a card that charges zero interest for an introductory or promotional period will give you more time to pay 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 expensive items will mean more interest to pay if you don't pay off the balance in full and on time. If you're already carrying a balance month to month, you should focus on paying it down rather than increasing it.

It will hurt your credit: Depending on your credit limit and the cost of the item, you could raise your credit utilization ratio, which could potentially 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 long interest-free or low-interest periods or that allow you to earn points or rewards. Cards with attractive sign-up bonuses can also be ideal if you plan 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 to qualify for the best rates and rewards.