The first day of the month sticks out for many tenants as time to pay rent. This monthly expense is one of the largest costs for renters and can place a great financial burden on tenants. If you’re looking to build your credit score, you can pay rent with a credit card. However, there are risks associated with paying your rent this way. Before you pay rent with a credit card, you should know how it impacts your credit score and your budget.
How credit payments work
When first using a credit card, it may be tempting to use it often to build a credit history. Before you decide to use your credit card, it’s important to understand how credit works.
When using a credit card, you are loaning money from the bank or card issuer to complete a transaction. You then must repay the loan to the card issuer in the form of full or monthly payments, with any remaining monthly balance accumulating interest. Interest rates vary depending on what credit card you have, and some cards have lower interest rates when you first sign up. Most credit cards incentivize users with rewards such as airline points, cash back, or low interest. Some credit cards offer cash back for certain types of purchases (such as gas, groceries, or rent).
Pros of using a credit card to pay rent
Paying rent with your credit card has many advantages. Credit card payments are convenient and quick (much faster than mailing in a check), and it’s a great way to build credit and earn rewards.
Rewards for minimum spending
Many credit cards offer reward bonuses when you sign up and meet minimum spending requirements. While it may seem daunting to charge hundreds (or thousands) of dollars to a credit card each month, using your rent payment can help you meet the minimum spend requirement and gain rewards such as airline points, cash back, or special bonuses.
Points, miles, and cash back galore!
Even if there isn’t a minimum spend requirement on your credit card, most credit cards offer cash back or points. You can save up points to buy an upcoming flight or earn cash back by charging rent to your credit card.
Financial security
Some tenants use their credit cards to pay rent despite having the cash in the bank. Others can pay rent with a credit card and provide coverage when waiting on a paycheck or in a time of financial insecurity.
Building credit history and improving your score
Any time you use a credit card, you build credit history. Paying your bill on time and in full is one of the best ways to improve your credit score. If you already have the cash for rent but are looking to improve your credit score, charging rent to your card and then immediately paying it off can raise your rating.
Never make a late payment again
Late rent payments can come with the sting of a late fee; if you’re prone to forgetting to pay on time, third-party services such as find services allow you to schedule out payments in advance.
Cons of using a credit card to pay rent
Paying rent with a credit card can earn rewards, build credit history, and offer financial security, but can also come with hefty fees and credit score damage if you aren’t careful.
Landlord’s restrictions
While there are third-party services that can help circumnavigate a landlord who doesn’t accept credit card payments, this method doesn’t always work. Some landlords won’t accept third-party transactions or credit payments. You can check your lease to see if there are any restrictions regarding methods of payment, or if you have questions, ask your landlord.
Processing fees
One of the biggest cons to using a credit card for rent is the processing fees for this type of payment. If you pay $1000 in rent, processing fees could cost you an extra $30 monthly. These fees can outweigh any cash back or reward advantages, so be sure to check both your credit card’s cash back policy and the percentage of fees taken out for processing rent payments via credit card to determine if it is fiscally advantageous. One exception to this is the Bilt Mastercard — this card has a $0 annual fee and earns rewards without charging you transaction fees for rent payments.
Interest payments
If you charge rent to your credit card but cannot pay it off in full, you will pay interest on the remaining balance. Interest adds up quickly, and you could pay more than the original payment over time.
Budgeting problems
While it may be tempting to use your credit card for rent so that you can spend cash on other things, this financial habit is a slippery slope. Credit card charges and interest payments, may leave you in poor fiscal health.
Limited credit
While some cards offer high credit limits, first-time credit card users often begin with low credit limits. This is perfectly normal, but your low credit limit may not cover the price of rent. Over time, your line of credit can increase to cover more costs per month.
Negatively affecting your credit score
While paying rent with a credit card could build your credit history and improve your score (especially when using select services like RentTrack), paying with a credit card can also increase your credit utilization ratio (the total amount of debt you hold compared to your credit limit). For example, if you have a $5000 credit limit but charge your $2,500 rent payment to your card, your credit utilization ratio is 50%. This ratio is a determining factor of your credit score. You should aim to keep your ratio at or below 30%. If you have a low credit limit, it might not be wise to charge thousands of dollars to your card.
Ways to pay rent with a credit card
If you decide to pay rent with your credit card, there are multiple ways to pay. Some landlords will accept credit card payments directly. If your landlord requires a mailed check, you may want to consider a third-party service.
Paying directly through your landlord or management company
Many landlords won’t accept rent payments with a credit card — they require a direct deposit or mailed check. Those who do accept credit card payments may charge a processing fee. Depending on what type of credit card you have, this processing fee could outweigh the benefit of points or cash back rewards. If your landlord doesn’t charge a processing fee, a credit card can help earn rewards and build credit. When you’re in a financial pinch and need to use the card one time, you can try asking your landlord for a fee exemption.
Third-party services
If your landlord doesn’t accept credit card payments, you can consider using a third-party service to navigate around any restrictions. There are multiple options for these services, some of which need your landlord’s involvement and some that don’t.
- RentPayment will take a credit card payment from you and then send a direct deposit to your landlord. This requires your landlord to accept direct deposits, so if your landlord only accepts mailed checks, you’ll need to find a different service. RentPayment will charge you a 2.95% processing fee.
- RentTrack also charges a 2.95% processing fee, but needs no landlord involvement, as RentTrack can send a paper check to your landlord. RentTrack also reports all payments to the major credit bureaus (Equifax, TransUnion, and Experian) which some landlords may not do. Regular rent payments to RentTrack can help build your credit history and raise your credit score.
- PlacePlay (formerly known as RentShare) requires the landlord’s involvement (they have to accept direct deposit), and PlacePlay charges a 2.99% fee. While this service charges a higher fee than others, it allows roommates to split the cost of rent directly in the service and choose individual payment methods. You can also schedule payments in advance and pay from their iPhone and Android apps.
- PayPal, Venmo, and Zelle can connect to your credit card, but your landlord would need to have an account on these third-party services. Before using any of these, consult your landlord to see what forms of payment or third-party services they accept. The upside to these apps is that they don’t charge additional fees for processing.
Cash advances
You can also take out a credit card cash advance. This is available at bank branches, ATMS, or through convenience checks. Depending on your bank, there may be a cash advance fee and a higher cash APR that will begin immediately. APR is Annual Percentage Rate of charge, including annual fees and how much interest your account accrues yearly. Your APR is dependent on your credit score, with high credit score individuals getting the lowest rates.
Balance transfers
If you’re struggling to pay rent or have high debt, you may want to consider a balance transfer. This allows you to transfer a high-interest balance on one credit card to another credit card. Balance transfers generally offer 0% APR for a while, and the lack of or low interest rates can free up funds to pay debt.
Is using your credit card for rent a good idea?
Credit scores can be major factors in qualifying for apartments. Landlords in New York City often seeking renters with credit scores above 700. It may be tempting to charge rent to your credit card to establish credit history, but you can actually end up damaging your score. A high credit utilization ratio or accumulating interest over time can both hurt in the long run. If you aren’t sure you will be able to pay off your credit card in full at the end of the month, you should pay rent with a debit card or direct deposit.
Weigh the difference of cash back and rewards from a credit card with the processing fees you will pay. If you earn 1% cash back but pay 2.9% in processing fees, you would end up losing money.
However, paying your rent with your credit card is a great way to build credit history and potentially improve your credit score. Make regular payments and keep your credit utilization ratio low to reap the benefits. It can also create convenience and help you maintain regular, on-time payments. Paying with a credit card can also be advantageous if you are waiting on a paycheck or experiencing financial insecurity. When compared to the late fees and damage to your credit score that paying rent late (or not paying at all) can create, paying with a credit card is preferable to defaulting on your payment and potentially facing eviction.
Ultimately, whether or not it is a good idea to use your credit card to pay rent is unique to the individual and your financial situation. Check with your landlord to make sure they accept your form of payment, especially if using a third-party service.
