Credit Cards have become a common tool of modern economic activity. Naturally, because Muslims are prohibited from dealing with interest, dealing with credit cards is surrounded by many questions related to their permissibility. In this article, I will attempt to answer some of these questions.
I will start my analysis with an explanation of what a credit card is, why it is issued and why it is used.
Understanding Credit Cards
A credit card is a card that allows you to borrow money from a bank to make purchases. For the bank issuing the credit card, the motivation is two-fold:
- When a merchant accepts a credit card payment, a percentage of the sale goes to the card's issuing bank. This is commonly referred to as the interchange rate.
- In return for lending the customer money, the bank charges the customer interest on top of the amount they borrowed.
For customers, there are a number of reasons why they may want to use a credit card to make a purchase:
- To borrow money; perhaps the most obvious of reasons.
- Security. If your credit card information is stolen it is much easier to get the credit card company to cancel any transactions the thief makes with your card than it is to recover cash that was stolen from your checking account had your debit card information been stolen.
- Building credit. Having a credit card that you pay off regularly is a really useful tool for many people who don’t have credit and need to build up their credit score. For those who are unfamiliar, in the United States, a credit score is a measure that is often referenced in order to judge your financial health and tendency to pay your bills on time. Having a good credit score is necessary for many things including renting a home and even getting a job in some cases.
- Universal Acceptance. If you go to a hotel or try to rent a car, at least in the United States, they are going to want to keep your credit card on file so they can charge me for any incidental expenses or damages I may cause. In most cases, they will not accept a debit card because this will require them to seek your approval before they charge you.
Now that we know what a credit card is, why it is offered and why it is used, the question is: is it permissible for a Muslim to open a credit card?
Do Credit Cards Involve Riba?
To answer this question let’s remember the definition of Riba...
Riba is involved in any loan wherein the lender is contractually entitled to benefit from the loan.
To understand why we think this is the definition of prohibited riba in Islam, please read: Islam’s view of debt and interest.
I should add, the prohibition of Riba in Islam isn’t limited to only the person charging interest:
The prophet peace be upon him cursed the person who charges riba, pays it, writes its contract and the riba contract’s two witnesses and said they are the same."
Interest charged on debt perfectly fits the definition of Riba in Islam.
Accordingly, in a perfect world, opening a credit card which requires one to sign a contract wherein they are agreeing to pay interest under certain circumstances is Haram. Unfortunately, there are currently no Halal alternatives which can provide the advantages of credit cards, some of which are real necessities as we saw earlier.
The Argument of Necessity
The translation of what Allah (SWT) says in Surat Al-Baqara:
He has forbidden you from consuming dead animals, blood, the flesh of swine, and that which has been dedicated to other than Allah. But whoever is forced [by necessity], neither desiring [it] nor transgressing [its limit], there is no sin upon him. Indeed, Allah is Forgiving and Merciful.”
The Holy Quran, Surat Al-Baqara, Verse 173
Basically, Allah SWT is telling us in this verse that that which is prohibited can be consumed if the consumer is faced with a pressing need, has no alternatives and only deals with the prohibited matter to the extent which removes his/her need but not more.
So for instance, if you are dying of hunger, and the only thing available for you to eat is pork, then it is permissible for you to eat that pork to prevent yourself from dying. However, you shouldn’t indulge yourself in this pork and eat until you’re full. Only eat enough to remove the necessity that forced you to consume Pork in the first place.
Questions To Ask Before You Open a Credit Card
Do I have a pressing need, and no alternative solutions, that requires me to have a credit card?
If the answer is: No, you do not have a pressing need for a credit card, then you shouldn't open a credit card. Even if you have no intention of paying interest.
To me, absent a pressing need, opening a credit card with the intention of not paying any interest is analogous to walking into a casino with the intention of not gambling. The bottom line is that you are taking footsteps in the wrong direction and bringing yourself unnecessarily closer to doing that which is prohibited.
The translation of what Allah SWT says in Surat Al-Nur:
O you who believe, do not follow the footsteps of Satan. And whoever follows the footsteps of Satan - indeed, he orders immorality and wrongdoing..."
The Holy Quran, Surat Al-Nur, Verse 21
On the other hand, if the answer is: Yes, there exists a pressing need for you to have a credit card, then I think it is OK under these circumstances to open a credit card.
However, we should not forget the Quran’s instruction that in these cases one should only use that which is prohibited to the extent which removes the necessity but not more.
When Is It OK to Use a Credit Card?
In my opinion, I think it is Ok to use your credit card if you already have the money you need to make the purchase and you pay off your credit card immediately. By doing this, you will not pay any interest since banks typically allow customers a 25-30 day “grace period” before they charge interest.
It’s important here to mention that I don’t think it’s permissible to make an unnecessary purchase with your credit card if you don’t have the money to cover your purchase even if you believe you will have the money to pay it off before any interest accrues. This is especially applicable for cards that offer 0% introductory rates for a set number of months after the customer opens their account.
If you’re surfing Amazon on Black Friday and you see a really good deal on headphones but you don’t have the money to pay for them, this is not a dire need! Do NOT buy those headphones with your credit card even if you think you will have the money to pay off those headphones before any interest is charged to you.
Life is unpredictable. Expenses can pile up quickly and your forecast of being able to pay off your debt in time may not materialize. Credit card companies prey on people who don’t have the discipline to wait until they have enough money to make the purchases they want. Don’t be one of these people! Don’t get caught in the debt trap! Remember, a primary reason why credit card companies offer %0 introductory rates is so people rack up large balances during this period which they are unable to pay off before the interest kicks in.
Summary
Before you open a credit card ask yourself:
Is having access to a credit card a necessity for me?
If the answer is “No” then don’t open a credit card.
On the other hand, if having a credit card is a necessity, then you can open a credit card but I want you to ask yourself the following question before each and every purchase you make:
Do I have the money to pay for the item I am about to purchase?
If yes, then you can go ahead and make the purchase but make sure to pay off your credit card immediately.
Most banks will allow you to set up automatic payment of your credit card balance so you never pay interest.
If you don’t have the money, then don't make the purchase!
I should add, if you find yourself lacking the required discipline to stick to the rules of credit card usage I mentioned, then you are probably better off not opening a credit card altogether.
Let me know what you think in the comments below!
U solved a very big concern of my life. Jazakallah. I always thot I can pay riba BT nt take it BT now I came to know it's the same frm. Both sides. Also, I shud buy thngs only if necessary as I used to buy as per my desire. Third very imp thng I learnt is tgt I can take a credit card if it's a necessity cuz I nvr hear any islamic preacher saying tgt n it always contradicted my thot process.
glad I could help.
Very informative article - thank you!
Thanks! Glad you liked it
The way you explained the flow of information and examples are really sincere. May Allah reward you for calling a spade a spade and not mincing words. JazakAllah.
Wayyakum, thank you
A very helpful article. JazakAllah Khair brother.
jazakallah Khair .Now i get it .
so whats the parnishment for paying riba?
I have delayed paying my property taxes because I forgot about the due dates. Now they have added interest to Bill, is this riba that I will be paying or a late fee?
Whatever it is, you have to pay it. So make sure you do exactly that and try not to put yourself in similar situations moving forward. (sorry for being blunt).
Your bff initiative looks good go you know of a UK version? Can I apply from the uk?
Unfortunately we are limited to U.S. based customers for now.
Ok please let me know if and when this changes
What counts as a necessity? I think I am confused because we can live off the bare minimum to survive and everything else in our lives could be counted as just extra things. An example of what I mean, you have a large family in a small house. It is sometimes hard, but it's not life threatening so it is not a necessity? Could you argue that a bigger house can lead to less stress, better home utilities, etc. which can ultimately lead to a much better quality at life. I believe a better quality life can lead to better health, working, and studying (for students) so a necessity, but it really is not a necessity as one can keep pushing through and managing what they have. Could you please what really counts as a necessity?
Are receiving credit reward points and using them Haram? We stopped using our credit cards, but we have points earned.
I don’t think using the rewards is Haram and Allah knows best.
Jazzakallah khair brother. Very informative and May Allah grant you ease and baraka in all your endeavors. Please I am a small business owner and with COVID I find myself struggling with finances. There has been a lot of offers from the Small business administration with funds from the federal government as relief to small businesses. What is the position for a Muslim accepting this relief funds? Some of the loans are even forgiven.
May I also know if there are any Islamic funding companies that can help Muslims business owner with loans without incurring riba. Barakallah feek
ASA brother and thank you for your intention on trying to provide useful content; however, you have overlooked the paths to be financially secure (renting or buying a home, being debt free, and earning a path of I dare say, financial freedom) without even the need for a credit card.
As a disclaimer, I'm not in any way passing judgement or trying to assert any overzealous view of Islam.
That being said, I grew up as a muslim in the states, particularly in Washington DC (which gives me a very keen perspective) and one of my best friends is a qualified professional in the fiqh of finances (having obtained a master's degree from University in Riyadh and worked with many different scholars vetting financial products for a prominent bank in Saudi).
Firstly, there is no true need for credit cards in the west. I lived here for years. I rent a home, have a very good job, and some financial security which is sufficient for me and many other muslims who abstain from transgressing limits unnecessarily in the "west".
It is quiet sad but true, that many muslims take ribaa lightly and go mortgages, auto-loans, and credit cards without much hesitancy. Why is this sad, there are a group of evangelicals who call out against the meaningless use of usury (ribaa) more than I see some muslims while also showing clear paths to success to not only "surviving" b ut thriving and even reaching financial freedom with proven methods that are all halal.
My advice to you having this platform and sharing useful content that is practical. Please do more research and abstain from making ribaa palatable to use when, even in these times, it isn't.
Last note here. The hadith regarding ribaa (even the slightest use of it)...."are scary as hell." Everytime I read these hadith I can't believe the risk Muslim's take on embarking on this dangerous affair, and for things that are in my humble opinion are overrated like. When you pause and think for Allah's sake (not offending him and showing respect by striving hard against boundaries He set) is far more rewarding.
WAA Brother and I wish everyone here success (truly)
Okay so my question is so you sign a contract that says that you will do a haram action (riba) after you are late on the deadline. I understand that this is haram. BUT for someone in eccomerce wouldnt they have to decline the credit card payments, because it is helping someone in doing haram. And how would you know if its a credit card payment. You wouldn't but there are still ways that you can decline credit cards, however it would result in bad bussiness. So would it be haram for a merchant to accept credit cards?