The first day of the month can be seen as a time for setting new goals or a shift in weather, but for many, it also means it’s time to pay rent. This monthly expense is frequently one of the largest costs for families and individuals and can place a great financial burden on those living paycheck to paycheck. If you are waiting for payday, low on cash, or looking to build credit score history, paying your rent with a credit card could be useful. There are some risks, though – before you decide to pay rent with a credit card, you should know how it can impact your credit score, what fees may be associated with the transaction, and how it can affect your overall budget.
How credit payments work
When first using a credit card, it may be tempting to use it for every transaction to build 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 when spending. If you’re looking to save up points to buy an upcoming flight or earn cash back, charging rent to your credit card can help rack up rewards quickly.
While some tenants may use their credit cards to pay rent despite having the cash in the bank, paying rent with a credit card can provide coverage for those 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, so 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.
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.
One of the biggest cons to using a credit card for rent is the processing fees that are associated with 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.
If you charge rent to your credit card but are unable to pay it off in full at the end of the month, you will be forced to pay interest on the remaining balance. If you’re not able to pay off this credit card debt quickly, you could end up paying hundreds if not thousands more dollars than the original price of rent.
While it may be tempting to use your credit card for rent so that you can spend cash on other things, this financial habit can be a slippery slope. Credit card charges can add up quickly, and with the addition of interest payments, you can end up with severe debt accumulation and in poor fiscal health.
While some cards offer high credit limits, first-time credit card users often begin with low credit limits, meaning the amount they can spend up to on a monthly basis is capped at a lower range by the credit card company. While this is perfectly normal, your low credit limit may not cover the price of rent.
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 rent payment of $2500 to your card, your credit utilization ratio would be 50%. This ratio is a determining factor of your credit score. You should aim to keep your ratio at or below 30%. This means if you have a low credit limit, it might not be wise to charge thousands of dollars each month to your card, even if you pay it off quickly.
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, but 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. However, if your landlord doesn’t charge a processing fee, paying with a credit card can be a great way to earn credit rewards and build credit. In some cases, you can also ask the landlord for a one-time exception to any processing fees if you’re in a financial pinch and want to use a credit card for a single rent payment.
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.
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.
If you’re struggling to pay rent or have high debt, you may want to consider a balance transfer. This option allows you to transfer a high-interest balance on one credit card to another credit card with lower interest rate. Balance transfers generally offer 0% APR for a period of time, and the lack of or low interest rates can free up funds to pay rent or debt.
Is using your credit card for rent a good idea?
Credit scores can be major factors in qualifying for apartments, with landlords in New York City often seeking renters with credit scores above 700. If you’re looking to raise your credit score, it may be tempting to charge rent to your credit card to establish credit history. Yet, if you’re not careful, you can actually end up damaging your score through a high credit utilization ratio or accumulating interest over time. If you aren’t sure you will be able to pay off your credit card in full at the end of the month, it may be more fiscally responsible to pay rent with a debit card or direct deposit.
Before making a decision, you should also weigh the difference of cash back and rewards that are offered by the credit card with the processing fees you will pay. If you earn 1% cash back in rewards but pay 2.9% in processing fees, you would be losing more money than you are earning in rewards.
With that being said, paying your rent with your credit card is a great way to build credit history and potentially improve your credit score as long as you make regular payments and keep your credit utilization ratio low. It can also create convenience and help you maintain regular, on-time payments. Paying with a credit card can also be the best route to go 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. Before proceeding, be sure to check with your landlord to make sure they will accept your form of payment, especially if you are using a third-party service.