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Can You Buy Stocks with a Credit Card?
May 14, 2025
Quick Answer
While it is technically possible to purchase stocks with a credit card, the practice is generally restricted by major brokerages and often involves significant fees and risks.
Should You Buy Stocks With A Credit Card?
Using a credit card for stocks has both potential benefits and significant drawbacks.
Benefits
- Rewards Programs: You can earn rewards like cashback, points, or miles on your investment purchase, just as you would with other transactions.
- Convenience: Funding an investment account with a credit card can be faster than waiting for a traditional bank transfer to clear.
- Introductory APR Offers: A card with a 0% introductory APR period allows you to finance your stock purchase interest-free for a limited time.
Costs
- High Interest Rates: If you carry a balance, standard credit card interest rates can easily outpace typical market returns, leading to a net loss.
- Cash Advance Fees: Many brokerages process credit card transactions as cash advances, which come with upfront fees and a higher APR that accrues interest immediately.
- Limited Brokerage Acceptance: Only a small number of online brokers permit the use of credit cards for funding accounts or purchasing securities.
- Increased Risk: Investing with borrowed money magnifies potential losses. If the stock's value declines, you are still responsible for the full debt plus any accrued interest.
How to Buy Stocks With A Credit Card
Using a credit card to buy stocks can be a strategic move, but it requires careful planning. Here’s a general overview of how to navigate this unconventional investment path.
- Check Brokerage Policies: Before you begin, confirm that your brokerage firm accepts credit cards for account funding. Many platforms do not, or have specific restrictions, so verifying their policy is a critical first step.
- Understand the Fees: Be aware that most credit card issuers treat funding a brokerage account as a cash advance. This often involves high upfront fees and a steep APR that starts accruing immediately, potentially outweighing any rewards earned.
- Choose the Right Credit Card: Selecting a card with low cash advance fees or other relevant benefits is crucial. If you need to find a new card, you can use Kudos' Explore Cards tool to compare thousands of options and find one that suits your strategy.
- Fund Your Account and Purchase: After confirming your brokerage's acceptance and understanding the costs, you can deposit funds from your credit card into your account. Once the funds are settled, you can proceed to buy stocks as you normally would.
Impact On Your Credit Score
While buying stocks with a credit card is possible, it can have significant consequences for your credit score. Here are the key factors to consider before making such a move.
- Credit Utilization Ratio. This purchase can dramatically increase your credit utilization, a key component of your credit score. A higher ratio can negatively impact your score as lenders see it as a sign of risk.
- Cash Advance Treatment. Many brokers process these transactions as cash advances, which often carry higher interest rates and fees. This can make your investment more expensive and harder to pay off, potentially hurting your credit.
- Potential for Debt. If your investment loses value, you are still responsible for the full credit card balance. This can lead to a high debt load and missed payments, which will damage your credit history.
Alternative Ways To Buy Stocks
Funding with Bank Accounts
Most brokerage platforms do not permit direct stock purchases with a credit card due to borrowing regulations. The primary method involves linking a bank account to your brokerage account. You can then initiate an Automated Clearing House (ACH) transfer to move funds. While these transfers are typically free and secure, they often require a few business days for the funds to clear before you can begin trading.
Using Different Order Types
Beyond a simple market buy, you can control your purchase with different order types. A "limit order" allows you to set the maximum price you are willing to pay, preventing a purchase if the stock's price surges unexpectedly. Another option is a "stop order," which triggers a buy only after the stock reaches a specific price point. These settings provide more strategic control over your investment entry.
Choose the Right Card to Buy Stocks
Whether you're looking for robust cash back to fuel your portfolio or travel rewards to enjoy your gains, selecting the right credit card is a crucial first step. The ideal card depends entirely on your personal spending habits and financial goals. With nearly 3,000 options available, Kudos' Explore Tool can help you find your perfect match by comparing features, fees, and rewards side-by-side, ensuring your choice aligns with your investment strategy.
For those wanting to maximize their card benefits, Kudos is the ultimate free tool for online shopping. Plus, for a limited time, you can get $20 after your first qualifying purchase when you sign-up for free using the code "GET20" at a Boost-enabled store.
Frequently Asked Questions
What are the risks of buying stocks with a credit card?
You risk accumulating high-interest debt from your card while also facing the potential for your investment's value to decline.
Are there extra fees for using a credit card?
Yes, most brokers process it as a cash advance, which incurs steep fees and starts accruing interest immediately.
Why don't most brokers allow buying stocks with credit cards?
Major brokers avoid it due to regulatory concerns, fraud risks, and the high potential for customer debt problems.
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Editorial Disclosure: Opinions expressed here are those of Kudos alone, not those of any bank, credit card issuer, hotel, airline, or other entity. This content has not been reviewed, approved or otherwise endorsed by any of the entities included within the post.
