Should you use a credit card to pay rent? And can you? Credit cards can be used to pay for just about everything else – utility bills, car payments, IRS bills, tuition, etc. – so why not rent?
These are valid questions for renters who may be looking for a way to build their credit history or to simplify the process of paying rent. The answers may vary depending on a number of factors, including how much it costs and your ability to manage your credit cards. Let’s examine the questions one at a time.
Does Paying Rent With a Credit Card Make Sense?
From a renter’s standpoint, paying the rent with a credit card might make sense for the following reasons:
- You need more flexibility with your payment options
- You want another way to build your credit history
- You have a cash back points program that can at least partially offset any transaction fees
- You are disciplined enough to pay your credit balances in full every month
- You are using a credit card with a great introductory bonus offer or no fee
- You want an easier and more reliable way to split rent payments with a roommate
If you find yourself in three or more of these, it could make sense to pay your rent with a credit card. However, it would be important to really understand your circumstances and how using a credit card can improve your situation. If you are not paying attention, things can take a quick turn for the worse. For instance, if you do lose control of your credit and end up having to make monthly payments with interest on past rent payments, things can quickly spiral out of control. Here are some other reasons why it would not make sense for you:
- Your credit card points are insufficient to offset any transaction costs. The typical transaction cost of paying rent with a credit card is around 3%. Most cash back programs pay a maximum of 1.5% to 2%on miscellaneous purchases, such as rent. You could be increasing your rent costs by as much as 1 to 2% each month.
- It could hurt your credit score. Even though you may be able to pay the balance in full each month, depending on when your balance is reported to the credit bureaus, it could show a high credit utilization, which reduces your credit score. You would have to pay the balance before the reporting dates.
- If you do end up having to make payments with interest, your effective rent cost increases by the amount of your APR.
- If building your credit history is your main concern, you could see if your landlord reports payments to the credit bureaus (some do) or you can have them reported through a third-party such as RentReporters.
Can You Pay Rent With a Credit Card?
The answer is “Yes!” Some landlords will accept credit cards for rent payments. It makes sense for them because they can be more assured of receiving on time rent payments. For those who do, however, you can expect to be charged extra for the credit card processing fees, which can be as high as 3%. This takes you back to the list of circumstances for when it might or might not make sense. Oftentimes, landlords will make arrangements with property management firms to accept credit cards on their behalf and they charge a smaller fee.
If your landlord does not accept credit cards, you can use a rent payment service. When you set up an account with a rent payment service, it acts as a middle man in the transaction. You provide the service with your credit card information and it will send a check on your behalf to your landlord. The service charges a processing fee that ranges from 2.5% to 3.5%. One company, Plastiq, will do the same for other payments you need to make, such as tuition and taxes. You can set your rental payment as a recurring payment with these services so you can set it and forget it.
It would be very important to weigh the pros and cons of using your credit card to pay rent, especially in light of your financial situation and your ability to manage credit. It may seem like a good idea for the right reasons, but one wrong move and it could go south on you.