Can You Buy Stocks With a Credit Card?

You might be ready to start investing but not have much cash available. If there’s room on your credit card, using it to buy a few shares might seem like an easy solution.

Most brokerages won’t take a credit card, and the workarounds stack fees and interest on top of market risk. If a firm does offer to take your card, regulators treat that as a red flag.

Why a brokerage that takes credit cards is a red flag

Brokerage accounts and credit cards serve different purposes. A cash brokerage account is for investing money you already have: you deposit funds, then you use them to buy stocks and other securities. A credit card is a type of borrowing.

There are specific rules governing borrowing to invest. For example, a margin account allows eligible investors to borrow money from their brokerage to buy securities, using the account as collateral. However, margin can magnify both investment gains and losses.

Credit cards aren’t designed as substitutes for margin accounts. FINRA notes that most registered firms prohibit customers from buying securities directly with credit cards. So if a firm or person offers to take your card for an investment, be wary.

A firm that accepts credit cards as direct payment for securities might not be registered, and the SEC warns that unregistered sellers often push investors to pay by card.

Before you share any card details, look up the firm or professional on FINRA’s free BrokerCheck.

Costly workarounds for buying stocks with a credit card

There are ways to turn available credit into money you can invest, but each adds another layer of cost or risk.

Cash advances

A cash advance lets you pull cash from your card’s credit line, which you can deposit in your bank and move to a brokerage or investment account. It’s one of the most expensive ways to use a card.

You’ll usually pay a fee, either flat or a percentage of the amount, and interest starts the day you take the money, with no grace period.

The cash advance rate is often higher than your purchase rate too. Your cardholder agreement lists both, along with any separate cash advance limit.

Third-party payment platforms

Some people route credit card funds through a payment app or other service, then move the money to a brokerage or investment account.

Expect a fee for the card payment, and your issuer may code it as a cash advance. If the service is unregulated, FINRA warns you may have limited options to get your money back.

You can check whether a money service business is registered with the Treasury Department’s FinCEN search tool.

Buying crypto with a credit card and converting

Another workaround is buying cryptocurrency with a credit card, selling it for cash, and using the proceeds to buy stocks.

Each step costs something: a likely cash advance fee and immediate interest from your card issuer, exchange fees going in and coming out of the crypto exchange, price movement while you convert the money, and a taxable event when you sell.

That’s four layers of fees to end up holding a stock.

Read more >> What Is a Cash Advance and How Does It Work?

Risks of buying stocks with a credit card

Borrowing to invest creates a mismatch: Your investment can fall in value, but your credit card balance doesn’t.

High interest rates and fees

If you carry the card’s balance, your investment needs to earn enough to offset your borrowing costs before you actually come out ahead. If you’re paying 20% interest on the balance, your investments would have to return more than 20% a year to come out ahead.

Potential impact on your credit utilization

Putting a large amount on your credit card can increase your credit utilization, which is the percentage of your available revolving credit you’re using.

Utilization is an important credit scoring factor, and lower utilization is generally better. That means using a significant portion of your credit limit to finance investments could affect your credit even if you make your payments on time.

Debt risk if investments lose value

Stocks don’t offer guaranteed returns. Suppose you borrow $1,000 to invest and your stocks fall to $700. You’ve lost $300 in market value, but you still owe the original credit card debt plus interest and fees.

Read more >> Can You Pay a Credit Card Bill With Another Credit Card?

Alternatives to using a credit card to invest

You don’t need a large lump sum to start. If your budget allows it, automatically transfer a small amount from each paycheck to your brokerage account.

Fractional shares, where your brokerage offers them, let you invest a smaller dollar amount rather than buying a full share.

Before you start investing, cover the basics first by building an emergency fund of three to six months of expenses, if you can get there, and pay off high-interest debt like credit card balances.

Read more >> How to Build an Emergency Fund

‍Two free calls worth making first

If you’re carrying card balances and aren’t sure what to tackle first, a nonprofit credit counselor can help you map out a plan. The National Foundation for Credit Counseling can connect you to free or low-cost counseling at 800-388-2227.

If the question is investing, check your 401(k) plan first. Many include access to advice at no extra cost.

Bottom line

Most brokerages won’t take a credit card, and every workaround adds fees and interest to the typical risks of investment. Small, regular deposits from your bank account can get you started without the debt.

On the credit side, a big card balance only affects how much of your available credit you’re using this month. Payment history is what builds over time. A Kikoff Credit Account reports on-time payments to Equifax, Experian, and TransUnion with no credit check to sign up. Plans start at $5 a month.