7 things to consider when choosing a credit card for large purchases
Editor's Note
One of the first lessons I learned when I got into the points and miles hobby is to put everything possible on a travel rewards credit card. However, it's also important to choose the best card to make sure that you get the biggest bang for your buck. This is especially true when it comes to making a large purchase. So, today I want to discuss nine things to consider next time you plan on swiping your credit card for a significant amount of money.
For starters, let's agree that the definition of a "large" purchase can vary significantly from person to person. You may not be able to charge a new car purchase to a credit card, but spending $1,000 or more on a medical bill, new laptop computer or an essential household item may be much more common. So, what card should you use?
Here's what to know.
Use a charge card
One possible option is to use a charge card instead of a credit card for large purchases. The biggest benefit to using a charge card is that charge cards have no preset spending limit. Instead, each purchase is approved on a case-by-case basis based on your history. The downside to using a charge card is that you must pay off your balance in full each month. (Then again, you should always be doing this, as I wrote about in my 10 commandments for travel-rewards credit cards post.)
As a reminder, one of the largest parts of your credit score is your utilization rate; in other words, how much of your available credit you're using. Since charge cards don't have preset limits, they aren't included in this calculation. As a result, charging a $5,000 purchase to a charge card won't have nearly the same impact on your credit score as charging that same purchase to a card with an $8,000 credit limit. However, your statement balance is still reported to the credit bureaus, so creditors looking at your credit report will still see the high balance.
Related: Business credit cards vs. charge cards — which is right for you?
Use a card with bonus earning
Where you make your purchase matters, as cards have bonus categories that include particular types of merchants. There are plenty of cards that offer valuable earnings rates on different categories, meaning you can earn additional rewards when spending in those categories.
If you're making a large purchase at a home-improvement store, for instance, you'll want to put it on your Citi Custom Cash® Card (see rates and fees), since you'll earn 5% cash back in your top spending category (up to $500 spent each billing cycle).
Some purchases, however, such as medical bills, likely won't fit into any bonus categories. For these types of expenses, you may want to use a card that's good for everyday spending, like the Citi Double Cash® Card (see rates and fees)
Check Amex Offers and Chase Offers
One often overlooked aspect of maximizing earning is Amex Offers and Chase Offers (which you check online). These offers provide statement credits or extra points when you add an offer to your card and then make a qualifying purchase. You can view the currently available offers when you log in to your online account page.
You'll usually find more Amex Offers per card than Chase Offers — but it's worth checking the offers on all your Amex and Chase cards before making a large purchase. Offers are usually available from travel, shopping, dining and entertainment merchants.
Use a card with a spending threshold bonus
Select credit cards offer valuable spending threshold bonuses that reward you for spending large amounts on your card during the year.
Charging a large purchase to a credit card that offers a welcome bonus could get you most or all of the way to the spending requirement for that bonus. You can also earn additional perks by hitting spending thresholds, like the Companion Pass on Southwest-issued cards and free night certificates on hotel cards like the World of Hyatt Credit Card.
Use a card with purchase protection
Something else to consider for large purchases is whether or not your credit card has purchase protection. Most travel rewards cards include some type of purchase protection coverage, which will typically cover you for damage, theft and sometimes loss of a covered item shortly after purchase (usually within 90 to 120 days).
However, you'll also want to know how high of a limit your card has, and whether loss is covered. American Express, for one, makes it easy to determine the level of protection available on your card though. Just go to the American Express website, click on the type of protection you're interested in and then click on your card.
Note that most of these policies limit the coverage provided for natural disasters though, and you can't invoke the benefit on purchases of permanent household fixtures (like carpet or tile).
Use a card with extended warranty protection
A similar benefit to purchase protection is extended warranty protection. When you purchase an item with a stated manufacturer's warranty, some credit cards will match or extend that warranty. This can be especially useful on appliances or electronics, which always seem to go bad a month or two after the initial warranty period is up (or is that just my bad luck?).
You'll want to make sure to save the original receipt, as you'll need it to submit a claim to invoke the extended warranty benefit.
But, if you're making a large purchase, cards like The Platinum Card® from American Express* and the American Express® Gold Card* can offer peace of mind and may one day put some money back into your pocket.
*Eligibility and benefit levels vary by card. Terms, conditions and limitations apply. Visit americanexpress.com/benefitsguide for details. Policies are underwritten by AMEX Assurance Company.
Related: The best credit cards for extended warranties
Use a 0% APR card
Although TPG always recommends paying off your balance in full each month, there are some situations where you might need some extra time. In this case, you'll want to consider a card that offers introductory 0% APR on purchases. You may be able to activate a 0% APR offer on an existing card in your wallet, or you may want to sign up for a new card that initially offers 0% APR on purchases.
However, be sure to pay off your balance in full by the end of the 0% APR period so you don't incur high interest and fees.
Some of our favorite 0% APR cards include the Capital One VentureOne Rewards Credit Card (see rates and fees; 0% intro APR on purchases and balance transfers for 15 months; 19.99% - 29.99% variable after that) and the Blue Cash Preferred® Card from American Express (see rates and fees; 0% intro APR on purchases and balance transfers for 12 months; 19.24% to 29.99% after that).
Related: How to use a 0% APR credit card as an interest-free loan
Bottom line
If you have a large purchase coming up, you should definitely think about which credit card makes the most sense. Some of the considerations above relate to earning and redemption potential, while others act as insurance policies if things go awry. As always, feel free to remove considerations that aren't important to you or relevant to your purchase, and add additional weight to the ones that mean the most to you.
The right card for each purchase will depend on the item being purchased and your particular circumstances. For some purchases — especially electronics — the potential value obtained from extended warranty, purchase protection and price protection benefits may justify using a card that earns less points on the purchase. Or, it might make sense to use a particular card if you're working toward a spending threshold or a minimum spending requirement on that card.
Related: Should you use a credit card for large purchases?
For rates and fees of the Blue Cash Preferred Amex card, click here.