How to identify what qualifies as a large purchase on a credit card

Quick insights

• Large purchases are generally classified as any purchase amount that would put you over 30% of your credit utilization ratio.
• Due to advancements in fraud detection technology, you do not need to notify your card issuer before making a large purchase.
• Putting large purchases on your credit card may help you earn credit card rewards.

Credit cards can be useful when it comes to making large purchases. In addition to potentially offering purchase protections, credit cards often allow you to earn rewards or points on eligible transactions too.

If you're thinking about putting a large purchase on your credit card, there are some important things you may want to consider. Most notably, are you able to pay off the balance? In this article, we'll go over the potential benefits and considerations of using your credit card for large purchases. In addition, we'll outline some strategies for paying off those larger balances.

What is considered a large purchase

What is considered a “large” purchase may be somewhat subjective. To some people, a $1,000 expense could feel large while others may put that figure closer to $10,000.

A more straightforward classification is tied to your credit utilization ratio, which is the amount of credit you use compared to your total available credit. Typically, a large purchase to your card issuer is one that would put you over 30% of your credit utilization. To determine your credit utilization ratio, divide the amount of credit you use by the total available credit. For example, if you have one credit card with a credit limit of $2,500, a $1,000 purchase would consume more than 30% of your available credit. However, if you have $40,000 in available credit spread over multiple cards, a $1,000 purchase may not impact you as much.

For the purposes of your personal finances, there are a few ways you could choose to classify something as a large purchase:

• If the purchase exceeds a certain dollar amount.
• If it equals a significant portion of your monthly income.
• If it would require an adjustment to your monthly budget.
• If it has an impact on your short-term or long-term financial goals.

If you use your credit card for everyday spending, a large purchase also could be considered anything that is outside of your normal spending.

Potential benefits of using a credit card for large purchases

There are a few benefits of using a credit card for large purchases, including:

• Security: Credit cards can provide a secure way to make large purchases. This is true especially if you’re making an online purchase or are in a situation when carrying a large amount of cash isn't practical or safe.
• Rewards: You may be able to earn rewards when using your credit card for large purchases. If your credit card offers 1x points or more on most purchases, putting a large purchase on your card can help you earn rewards quickly.
• Purchase protections: Credit cards may offer purchase protections that other payment methods may not. Some credit cards offer protection that can cover damage or theft for a certain period after the purchase.
• Credit history: Putting a large purchase on your card may also be a good move if you’re looking to build your credit history. Regularly using your credit card and making timely payments can be beneficial in demonstrating your creditworthiness when applying for loans or other credit in the future.

Considerations when using credit cards for large purchases

Before you put a large purchase on your credit card, there are a few things you may want to consider, including:

• Debt: If not managed properly, large purchases can lead to credit card debt. This is especially true if you're unable to pay off your balance in full and start accruing interest.
• Credit utilization ratio: Large purchases can increase your credit utilization ratio. A high credit utilization ratio may negatively impact your credit score.
• Potential for overspending: Credit cards can make it easier to overspend. Before putting a large purchase on your card, consider if it is within your budget or can be paid off in a timely manner.

Why you don’t need to notify your credit card issuer about large purchases

Due to advancements in fraud detection technology, you don’t need to worry about notifying your credit card issuer about large purchases. Chase no longer accepts these types of notices.

As long as your credit card contact information is up to date, your card issuer can contact you should any issues arise.

Strategies for paying off large purchases

Once your purchase is on the card, you’ll need a plan to pay it off. That could be paying a certain amount each month toward your card until it's paid off or planning on making a large payment if you have an influx of income—like a tax refund—on the horizon.

When making a purchase that you can’t pay off within one billing cycle, you might want to use a credit card with a low interest rate. If possible, you may be able to find an introductory annual percentage rate (APR) credit card offer, allowing you to put the purchase on the card without paying high interest for a specific period.

In summary

There are potential benefits to putting a large purchase on your credit card. They may include accumulating rewards points, purchase protections and building up your credit score. However, these may only be beneficial if you have a plan to pay off your purchase. If you aren’t able to pay off a large purchase within a billing cycle, note that it may accrue interest.