Using credit cards can be a tricky game, especially when using them for rent payments.
Do you earn points or miles for travel when you use them? Do you only pay the minimum each month? Or do you pay cash and focus on staying debt free? It gets even trickier when you are deciding whether to use credit cards for large recurring bills such as rent.
Using a credit card to pay rent could be a great way to streamline payments when your monthly expenses and paychecks don’t line up, or it could be a good way to get into major debt.
We’re going to review the pros and cons of using a credit card to pay rent.
Pro No. 1: Evens out the cash flow ebb and flow
Bill due dates often don’t fall in line with paycheck dates so cash flow can become an issue. You may be flush with cash during week three of the month but going in the red week one. Paying rent with a credit card could be a way to avoid that issue. If you set up your bills to be automatically paid with a credit card and automate paying the credit card on pay dates, this method could smooth out cash flow issues throughout the month.
Pro No. 2: Points and miles
According to Million Mile Secrets, paying rent with a credit card to earn miles and points is a method to earn extra points. Many credit cards provide perks such as early release concert tickets or a special airport lounge if you spend an annual minimum. Paying rent with a credit card is an option to meet that minimum if you have great perks to offset fees.
Pro No. 3: Builds credit
Someone with little to no credit could build their credit score by paying rent with a credit card. Each time you put the rent on the card and pay it off, you improve your credit score and prove your creditworthiness.
Con No. 1: Can lower your credit score
If you are not paying off your card every month, not only will your debt add up quickly, but your credit score can suffer. For those with a low credit limit, it won’t take long for your debt percentage to rise. When you are using a high percentage of your available credit, your credit score can go down, which hurts you anytime your credit is checked. When you are looking for a new car, lease, or credit card, a poor debt-to-credit ratio could raise your interest rate or result in a rejection.
Con No. 2: Credit card fees
When rent is paid with a credit card, there will always be a fee. Cozy has a standard 2.75% credit card processing fee. Look at your bills, points, and credit card perks to determine if the 2.75% fee is worth it. Rent that is $1,500 a month would result in a $41 fee each month. Are your points worth it? On the other hand, if you couldn’t pay rent on time without a credit card, would the $41 be less than a late fee?
Con No. 3: You’re playing with fire
Do you have a history of high debt? If so, it might be a bad idea to use a credit card to pay rent. It’s easy to pay the rent with a credit card, but it might be difficult to pay the card. This could cause your debt to increase exponentially. Without the ability to pay the credit card off each month, not only will you be paying the processing fee, but also the interest rate. Your debt can get out of control, depending on your interest rate.
The landlord’s perspective
As a landlord, I would accept credit cards. Before accepting a tenant, landlords complete a credit check, reference checks, pay stub verification, and background checks. We are fully aware of the financial lives of our incoming tenants.
If you are comfortable entering a lease with a new tenant, then trust that they can decide whether paying rent with a credit card makes sense for them.