Right from the start, there is a big caveat here, so please read the article in its entirety.
Today, there are a lot of credit cards available offering some really great perks, such as cash-back bonuses, travel rewards, and gift cards. In some cases, it might make sense to use your credit card to pay your rent, if you can, in order to tap into those rewards. In other cases, you may be endangering your credit score and/or your finances in general.
Grand Canyon Advisors, a firm that specializes in providing solutions for people who have problems with debt, advises approaching the use of credit cards with careful planning and understanding of the implications on your finances. The following are some thoughts on when it is advisable to use your credit card to pay your rent and when it is risky.
Few Landlords Accept Credit Card Payments
According to Experian, few landlords accept credit card payments for rent, unless you are paying a large property management company that is representing the landlord. Experian states that some landlords will take Paypal. Also, Experian states that some landlords will take Venmo to receive your rent payment.
The catch with Venmo is that you have to use your bank account to transfer the payment, so you will miss out on the rewards from your credit card. Paypal does have a 2 percent cash-back option on their personal Mastercard, and a 1 percent cash-back option on their business credit card. Their consumer credit cards will give you cashback on all purchases, while the business credit card will only provide the cashback for approved purchases.
There are services that allow you to pay them your rent and a 2 to 3 percent fee. They then forward a check to your landlord. Such companies include Plastiq, RentShare, and RentTrack. If you are hoping to get a cash-back reward from your credit card company for paying your rent, though, the fees charged by the rent-payment service will cancel out the cash-back reward, in most cases.
If you don’t have much credit and hope to build your credit score, paying your rent with a credit card, where you can, will improve your credit score, if you pay down the balance at the end of each billing period.
Avoiding a Late Payment
If you are self-employed, as so many more of us are today, and you are waiting on late payment by a client, sometimes you may want to use the credit card to make the rent payment in order to tide you over until your client’s fee arrives. This can help you avoid late fees that the landlord may impose, as long as you are able to pay the balance at the end of the credit card’s billing cycle to avoid another fee in the form of the interest rate charges.
When It Is Ill-Advised
When You Have to Carry a Balance
According to The Balance, the average consumer credit card interest rate for October 2019 is 22 percent. If you carry a balance on your credit card, you will be paying exorbitant interest rate charges. You can rack up quite a bit of debt and end up with payments that you can no longer service. Then, your credit rating will suffer.
When It Pushes Your Credit Utilization Too High
Also, Nerdwallet reports that, even if you are still able to make the credit card payments when you carry a balance, you could push your credit utilization ratio too high and harm your credit score anyway. They suggest a good credit utilization ratio is around 30 percent. That means that you are only using 30 percent of your combined credit limits on all of your credit cards.
According to Experian, after paying on time, then the second determinant of your credit score is your credit utilization ratio. If your credit utilization ratio stays high for a period of months, your credit score will decrease. If you apply for other credit and you have a high credit utilization ratio, Experian warns that you may be turned down or end up with a higher interest rate on the new source of credit.
If it can help, rather than hinder your credit score, or if you can get cash-back rewards and avoid paying the high interest, making your rent payment by credit card may be a good idea in some limited circumstances.
If you are having trouble with high-interest credit card debt, call Grand Canyon Advisors, they have solutions for people struggling under heavy debt loads.