Xbox Design Lab will not allow me to use Xbox credit for the controller purchase?

It depends on whether you are talking about a normal controller from the Microsoft Store or a Design Lab one (as noted "theyre more expensive on amazon then a custom designed one"

Normal controllers bought through the Store can use MS credit. Design Labs controllers do not allow use of MS balance of gift card to purchase:

"No, there isn't a way to use gift cards, codes, or CSV to purchase a controller.

You also can't make split payments between account funds, codes, and another payment method on file with your Microsoft account."

Xbox Design Lab FAQs

I did try to ask about this on Support but nobody knows the answer. A definitive yes or no would be nice as I would like to buy a Design lab controller using MS credit.

Do we have any updates as for now? I'm still not able to purchase it using credit and since getting a Xbox Design Lab controller was the main/only reason I participated in the Rewards program, it all feels pointless now and like a waste of my time. I'm really dissapointed to be honest.

Also, I redeemed my Rewards points before this change in the payment system. There's no way one could have anticipated this and now I have money that is due to expire rather soon. How is this okay?

Hello, first it's a pleasure to be able to help you today.

My name is welcome to the community.

Hello Fr0zenIc3, unfortunately Microsoft has not published any official statement, but since the Design Lab store was redesigned the system has not accepted more credits for the payment of the controls.

So we can't speculate whether it's temporary or definitive in the Design Lab payment system.

There are currently no offers to receive credits for purchasing a design lab controller.