Top 5 Rules for Trading Bitcoin Using a Credit Card
Many famous BTC exchanges reject credit cards, and this is a big hurdle. Banks impose their own restrictions, too. So, is there a way to buy BTC using a credit card? It is feasible, but the methods are far from perfect. Here are 5 key tips.
Be Aware of Restrictions
Check that both parties — the exchange and the bank — allow such transactions. On major platforms like Coinbase, they are impossible. Meanwhile, services like CEX.io accept only Visa and Mastercard. Even if the platform accepts your card, the bank may prevent you from using it anyway.
In the US, the situation is complex. Large banks either prohibit buying Bitcoin or impose high fees. Clients of smaller banks are reluctant to use their cards because of the costs. And these are not limited to bank charges.
Find out About Exchange Fees
How much will the platform charge you? Aside from the service fee, using a card may add another payment on top. For instance, clients who want to convert dollars to BTC or altcoins often lose a percentage of the sum. There will also be a minimum transaction amount.
Suppose you trade on Coinmama. The system gives access to BTC and 7 altcoins. You have to buy at least $60 worth of cryptocurrency. The fees include 5.95% for transaction processing and 5% for credit card use. From an investor’s perspective, this is a terrible method. You would need to make a 12% profit just to cover those expenses.
Is It Considered Cash Advance?
Some banks may classify these transactions as a cash advance. This means they entail the same charges as taking money out of an ATM. As you should know, withdrawing cash from a credit card is a terrible idea. First, the advance fee applies (3-5%). For instance, if you pay $100 for BTC, a fee of $3-5 is almost certain.
Secondly, withdrawal operations are more expensive. The interest rate is always higher than for cashless payments. There is no grace period, so interest begins to accumulate from day one. Finally, you may not have access to the desired amount, as the credit limit for withdrawals may be smaller.
Find out About Foreign Exchange Fee
If you want to trade on a foreign platform, this fee may apply. Usually, it equals about 3% of
the transaction amount.
Think About Credit Utilization
If you intend to make large purchases of cryptocurrency, think twice. This will lower the amount of available credit and boost the balance, so your credit score will decrease. If you are planning to take out a loan in the coming months, utilize less of your credit to qualify for better conditions.
The Bottom Line
As you can see, using a credit card for trading is costly. Do not go into debt to purchase cryptocurrency. Find out about all applicable fees from the exchange and the issuer.